We still don't know why the cryptos crashed. It could be that the last fool was found. Like Gamestop, cryptos are uniquely suited to the Congressionally approved Ponzi investment strategies hatched on Reddit...
The intended design behind Bitcoin and other cryptos is to create scarcity. As price moves higher, the amount of supply becomes increasingly constrained by the mining algorithms, difficulty level, and available hashrate/computing power. Therefore, liquidity becomes constrained as well. These were precisely the conditions that attended the massive Gamestop short squeeze. However, the scarcity factor for Gamestop came from the fact that hedge funds had borrowed the shares and were forced to buy them back. Low liquidity is a critical requirement for parabolic price moves, but unfortunately it cuts both ways. Which is why Bitcoin is known for its two way volatility. It will never be a stable currency. It's a speculative toy. The rest of the cryptos are even worse. There are now over 6700 cryptos and they are proliferating like rabbits. The fact that they are all 100% correlated should serve as a warning sign to speculators.
New "flash loans" are allowing crypto speculators to use cryptos as collateral to buy other cryptos. In the same way that 2007 era subprime CDOs were built upon other subprime CDOs creating instantly exploding CDO "squared", which had the shelf life of a rotten banana.
We now have a similar thing in Crypto Ponzi schemes:
“In a way, flash loans make everyone a whale” said Nikola Jankovic, community manager at flash loan provider DeFi Saver, referring to the crypto industry nickname for large investors who are often able to move markets by themselves."
Leveraged cryptos are the ultimate form of speculation. It's the crack cocaine of gambling, so it should come as no surprise that the crypto bubble is one of the last and largest speculative bubbles to burst.
Ponzi King Mike Novogratz warned last week that we are seeing a blow-off top in crypto speculation:
"I've seen a lot of weird coins like dogecoin and even XRP have huge retail spikes, which means there's a lot of frenzy right now."
"In the next week, certainly we could have some volatility because of the excitement around Coinbase."
Indeed, we have already started to see some volatility. I showed this chart below on my Twitter feed which overlays the Google trends search term "Crypto", onto a graph of the Global Dow. As we see, they peaked simultaneously in 2018. This time, crypto searches peaked back in February with the Nasdaq and is having a double top now with the Global Dow. We also see that margin debt peaked in early 2018 when the crypto bubble exploded. This time however, a "washout" in crypto could have carry-over effects into mainstream financial markets. Why? Because now, BitCon has gone mainstream and is the "most crowded" hedge fund trade of 2021. In addition, Robinhood now allows stock gamblers to buy cryptos on their platform.
It's the equivalent to linking the U.S. banking system to the subprime housing market in a speculative housing mania. It's a bad idea, considering there is now record margin debt AND crypto is a $2 trillion market cap - almost three times larger than in 2018. It's a disaster wanting to happen.
The way I see it, the same way Gamestop fueled a manic reach for risk that exploded in February, the Coinbase IPO fueled a manic reach for risk that is peaking now.
The question on the table is if a $20 billion pump and dump scheme almost crashed the market, what does that portend for a $2 trillion pump and dump scheme that is 100x larger?
Feb. 17th, 2021:
April 17th, 2021:
“It’s reminiscent of GameStop”
Indeed.
