Bitcoin Weekend Crash Provides a Hard Look at “Rat Poison Squared”
By Pam Martens and Russ Martens: December 6, 2021 ~
Bitcoin was trading at over $57,000 on Friday. Over the next 24 hours it had plunged below $43,000. On some trading platforms, Bitcoin’s price was cut far below the $43,000 level. The Dow Jones news outlet, MarketWatch, reported that “NYDIG, a technology and financial services firm dedicated to bitcoin, said that the decline was even more severe for some offshore platforms such as Huobi, where bitcoin briefly touched a 24-hour nadir at $28,800 on Saturday.”
Bitcoin front month futures on the CME at 7:49 a.m. ET this morning show it had bounced back to $48,715.
This is hardly the first time this year that Bitcoin has put on a wild display of price swings. On May 19 Bitcoin removed any lingering doubts that it is a stable currency that could be used to pay for products or services. At that time the current month Bitcoin futures contract at the CME swung between a low of $30,250 to a high of $43,530 – a difference of $13,280 in one trading session. From its intraday high of $58,140 on Wednesday, May 12, to its close one week later on Wednesday, May 19, Bitcoin had lost 34 percent of its value.
The current problem with Bitcoin is the same problem that all other highly-leveraged trading instruments are having in the new world of Fed tapering. But Bitcoin has an additional problem: credibility.
One of the most respected investors in America, Warren Buffet, summed up Bitcoin like this in May 2018: Bitcoin is “probably rat poison squared.” Also in 2018, Bill Harris, the former CEO of Intuit and PayPal, wrote a detailed critique of Bitcoin for Vox under the headline: “Bitcoin is the greatest scam in history.” Harris explained:
“In my opinion, it’s a colossal pump-and-dump scheme, the likes of which the world has never seen. In a pump-and-dump game, promoters ‘pump’ up the price of a security creating a speculative frenzy, then ‘dump’ some of their holdings at artificially high prices. And some cryptocurrencies are pure frauds. Ernst & Young estimates that 10 percent of the money raised for initial coin offerings has been stolen.”
As if on cue, there was another crypto heist over the weekend, with hackers stealing somewhere between $150 million to $200 million from crypto platform BitMart.
In July 2019, NYU Professor and economist Nouriel Roubini provided a scathing critique of Bitcoin in a Bloomberg News interview, stating:
“Crypto currencies are not even currencies. They’re a joke…The price of Bitcoin has fallen in a week by how much – 30 percent. It goes up 20 percent one day, collapses the next. It is not a means of payment, nobody, not even this blockchain conference, accepts Bitcoin for paying for conference fees cause you can do only five transactions per second with Bitcoin. With the Visa system you can do 25,000 transactions per second…Crypto’s nonsense. It’s a failure. Nobody’s using it for any transactions. It’s trading one sh*tcoin for another sh*tcoin. That’s the entire trading or currency in the space where’s there’s price manipulation, spoofing, wash trading, pump and dumping, frontrunning. It’s just a big criminal scam and nothing else.”
On June 30 of this year, the House Financial Services’ Subcommittee on Oversight and Investigations held a hearing on the crypto mania that has engulfed U.S. financial markets. The hearing was titled: “America on ‘FIRE’: Will the Crypto Frenzy Lead to Financial Independence and Early Retirement or Financial Ruin?”
One of the witnesses testifying at the hearing was Alexis Goldstein, a Wall Street veteran and current Director of Financial Policy for the nonprofit group, the Open Markets Institute. Goldstein testified that some crypto exchanges “like FTX and Binance and many others” are allowing traders to use as much as 100 times to 1 leverage to buy cryptocurrencies.
As the Fed tightens credit by reducing the $120 billion a month it has been making in bond purchases, trading instruments that rely on large amounts of leverage are showing wild swings as margin loans become pricier and harder to obtain.
Goldstein was asked during the June 30 hearing if there was any transparency on which hedge funds held the largest positions in crypto and who their counterparties are. Goldstein responded that crypto is not currently reported on the 13F forms that hedge funds are required to file with the SEC, which list their ownership positions in stocks and bonds, so regulators are currently “totally in the dark.”
Goldstein raised further concerns in her written testimony to the Subcommittee, writing as follows:
“…Too Big To Fail banks are also a growing presence in the cryptocurrency market. Goldman Sachs plans to open a cryptocurrency trading desk, BNY Mellon allows its clients to hold Bitcoin as of February 19, Wells Fargo will offer professionally managed cryptocurrency funds for qualified investors. Morgan Stanley’s Europe Opportunity Fund reported owning 28,298 shares of the Grayscale Bitcoin Trust, according to a June 28 filing. Venture Capital firms have already invested $17 billion into cryptocurrency firms so far in 2021, more than three times what they invested in all of 2020. In addition, the concentration of particular cryptocurrency assets into a small handful of addresses raise concerns about power concentrations. To take one example, there are several very large ‘whales’ in the Dogecoin cryptocurrency, including a single address that holds over 36.7 billion DOGE (or some 28% of total Dogecoin) worth more than $8 billion. As of February, the top 20 largest Dogecoin addresses held half of the cryptocurrency’s entire supply.”
