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THIS WEEK’S EDITORIAL
THE MAD, MAD WORLD OF CRYPTO: On 11th November 2021, the total Crypto market capitalization reached its peak of almost US $3 Trillion ($3,000 Billion). Since then, it has collapsed to US$950 Billion, a decline of almost 70%. On 31st October 2021, eleven days previous to the all-time High, BOOM wrote the following editorial:
ARBITRAGE IN THE BITCOIN WORLD — 31st OCTOBER 2021
QUOTE: “Last week was dramatic for the unregulated Bitcoin/Crypto markets and for the Bitcoin derivatives that are traded on regulated markets which BOOM discussed last week. It was also a dramatic week in the global bond markets — all of which are regulated, of course. But let’s look at Crypto first.
The US Dollar price of Bitcoin suddenly crashed on the unregulated markets by about 8.5% from Tuesday to Wednesday. On Thursday and Friday, it recovered the bulk of that fall as buyers overcame sellers. But for a short while mid-week, the unsophisticated holders of Bitcoin were holding their breath. Why? Because it was a scary moment.
In the previous editorial last Sunday, BOOM discussed the new ETF based upon Bitcoin Futures, traded on the Amex exchange in the US (Amex Code: BITO) — “the BITO ETF can be manipulated down via well-known pathways of manipulation that exist in a cash settled futures contract listed on a futures exchange”.
Bear in mind that the unregulated crypto markets never close (they trade at all times) but the ETF trades only during normal stock market hours. On the Wednesday Open, BITO gapped lower alarmingly then rebounded sharply on Thursday. It continued to firm on Friday.
To BOOM, it is pretty clear what happened. A whale (a big institutional trader with very deep pockets) went ultra Short regulated BITO on Wednesday then sold unregulated Bitcoin hard on the Wednesday evening while the ETF market was closed. And the whale stayed away from the market until buying it hard on Thursday evening on the unregulated markets — again, while the ETF market was closed. During the interim, BITO on the Amex exchange fell hard by about 7.5% during Wednesday’s trading session. In other words, the whale was testing to see if it could move both markets in a coordinated fashion to create a guaranteed win on the (presumed) BITO short position.
Because the heavy selling and buying occurred on the unregulated markets — possibly far removed from the US geographically and also possibly done by an unidentified proxy trader affiliated with the whale — it was all (possibly) quite legal or at least very difficult to detect. That is the important take-home point to understand. A whale can kill the Bitcoin price in Malta, for example, moving the price of BITO sharply lower the next day in the US ETF market and the regulators in the United States can do nothing. Bingo. Wash and repeat — many times.
It looks like the world of Bitcoin is about to get a whole lot more volatile. The wild ride may well become much wilder. Holders of large Bitcoin positions can generate such trades easily by selling hard then buying back. It’s easier to profit if you can create the future. Over a year, the returns could be far in excess of any loss made on the value of any fall in the Bitcoin price; especially if the holder has a very cheap overall entry price in which case the annual fall in price may be relatively inconsequential. A relentless downtrend could be the result until the entry point is reached (which could theoretically be close to Zero).
Similar arbitrage opportunities await traders in the Bitcoin Futures market at the CME (Chicago Mercantile Exchange) versus the BITO ETF at the Amex exchange and also versus the various unregulated Bitcoin markets. Like all roller-coasters, this roller-coaster is a closed loop — a closed loop of perhaps endless manipulation.” UNQUOTE
THE GAME CONTINUES: Last week, BOOM warned readers yet again by saying — “BOOM has previously discussed concerns for the Stablecoin markets and the Crypto market as a whole. These recent events are adding to that concern. The rope bridges need to be watched closely.”
The rope bridges that BOOM was referring to are the Stablecoins which connect the world of Crypto with the real world of Fiat. As BOOM sat down yesterday to write this week’s editorial, the price of the “stablecoin” USDC (issued by Circle) fell dramatically – from US$1.00 to 95 cents – within 5 hours of starting to trade without conviction. However, the fall from above 99 cents to 95 cents occurred within just one hour of trading. The chart looked very alarming indeed. Meanwhile, the 24-hour volume had doubled in that 5-hour time frame. Again, not a pretty sight.
Circle (reportedly) holds 25% of its Cash in deposits at Silicon Valley Bank which was ordered shut 2 days ago by the US regulators. Then the Binance exchange announced that they were “temporarily” suspending conversion of USDC (Circle’s Stablecoin) to BUSD (Binance’s Stablecoin). This is called slamming the door in your face (if you are a holder of USDC’s).
The total assets value available for purchase in the US is estimated to be around US$125 Trillion. That includes bonds, shares, commodities and property. The total assets value for the entire planet is (probably) of the order US $300 Trillion. The entire Crypto market is currently valued at US$950 Billion (and falling). So the Crypto market is just 0.3% of the global total. In other words, it could collapse to Zero and almost nobody would notice except those with “investments” in one or more of the 22,854 Cryptos that now exist. The website CoinMarketCap only tracks 9,063 of those so presumably 13,791 Cryptos have already reached Zero.
The highest priced Crypto is Bitcoin. On 13th November 2021, it registered a price of US$64,158. Its current US Dollar price is $20,601 at the time of writing. By the way, the prize for lowest price in those 9,063 Cryptos is held by a Crypto called Archie Neko with a price of US$0.000000000000000016c – that is 16 zeros after the decimal point. So Archie Neko is not “valued” at zero. But very close to it.
With Bitcoin now around $20,000, the game continues. This roller-coaster has a long way to go before it runs out of fuel somewhere near Zero. In the meantime, it appears to be the perfect money making machine.
BINANCE BLOCKS THE EXITS FOR RUSSIANS: On Thursday last week, the world’s largest Crypto exchange by trading volume, Binance, decided to stop Russian-based users from buying and selling US dollars and Euros using its trading platform.
The company attributed the decision to the latest round of Western sanctions against Russia, saying that transactions in US Dollars and Euros will be unavailable to any individuals residing in Russia regardless of their nationality.
This is a poor decision by Binance and clearly suggests that it has been threatened in some way by anti-Russian forces. In doing this, Binance has possibly turned its back on the vast majority of people on the planet who live in nations which are more aligned with China and Russia. Binance’s decision appears to be a very poor one which was obviously made under duress.
SAUDI ARABIA, CHINA AND IRAN AGREEMENT: Other big news last week was on the Geopolitical front where an announcement on Friday revealed that Saudi Arabia and Iran had reached agreement on re-establishing formal Diplomatic relations. The deal was brokered by China.
The agreement was the result of deep discussions that were backed by the Saudi, Iranian and Chinese leaderships. The Saudi Minister of State, Member of the Council of Ministers, and National Security Advisor, Musaad bin Mohammed Al-Aiban stressed on Friday that the agreement reached between Saudi Arabia and Iran on restoring direct diplomacy tackled the reasons for the differences between the nations and ways to address them.
The agreement reportedly underscores respect for the sovereignty of nations and refraining from meddling in their internal affairs. If this is true, then this was obviously the bedrock of the agreement and arguably an insult to the US State Department.
Notably, the Iranian President Ebrahim Raisi visited Beijing with a large delegation in February to meet with Xi Jinping, the President of China. In that meeting, Xi Jinping assured Raisi of Chinese support for Iran in safeguarding its sovereignty, independence, territorial integrity and national dignity.
The connections between Saudi Arabia, the United Arab Emirates, China, Turkey and Iran are all growing steadily as BOOM has documented previously. Of course, Russia is quietly building upon those relationships as well. And the so-called “multi-polar” currency world is gaining traction through those links.
Egypt has also shown strong interest in these initiatives. Fellow Gulf states, the United Arab Emirates, Oman, Qatar, Bahrain and Kuwait welcomed the restored Saudi-Iranian ties, as did Iraq, Egypt and Turkey. Momentum is certainly building. Hopefully, the war in Yemen will soon come to an end due to these events.
China is Iran’s largest trading partner. They are developing a 25-year “strategic cooperation pact” which is aimed at seeing China invest billions of dollars in Iran’s oil and gas sectors, in exchange for energy supplies.
As BOOM has said previously, this is not the end of US Dollar Dominance in global capital and trade settlements. However, it is certainly the beginning of the end. Having said that, BOOM must remind readers that US Dollar Dominance is not maintained via the flawed concept known as the “Petrodollar” agreement. It is maintained by the sheer weight of global Eurodollar loans in existence which are denominated in US Dollars.
THE DUMBEST EVERYTHING: In BOOM’s estimation, history will eventually reveal that the two dumbest things ever done in the 21st century were the destruction of the Nordstream Pipelines on 26th September 2022 and the assassination on 3rd January 2020 of, Qasem Soleimani, the Iranian major general, who was targeted and killed by a U.S. attack drone near the Baghdad International Airport in Iraq while he was on his way to meet Iraqi Prime Minister Adil Abdul-Mahdi.
These two events which appear to have been based upon very poor intelligence and even worse executive decisions are of great historical stature and will (eventually) be seen to mark the beginning of the end of US Dollar dominance in global affairs. They are Bretton Woods 2. However, it will be another century (or half century) before we can ascertain their true importance.
CHINA ISSUES ADVICE TO US: Last week, China’s President Xi Jinping said that “Western countries led by the United States have implemented all-round containment, encirclement and suppression of China, which has brought unprecedented severe challenges to our country’s development”.
Also late last week, China issued a warning to the US. Beijing’s new foreign minister Qin Gang told a press conference on the side-lines of the ongoing National People’s Congress (NPC) that there would be “catastrophic consequences” if the US carried on in its current direction.
“If the United States does not hit the brakes but continues to speed down the wrong path, no amount of guardrails can prevent derailing, and there will surely be conflict and confrontation,” Mr Qin told journalists. He also said “Who will bear the catastrophic consequences?”
China also asked the US to end its occupation of Syria. A Foreign ministry spokesperson, Mao Ning, was reported as saying “We call on the US to respect other countries’ sovereignty, independence and territorial integrity, immediately end the troops’ illegal occupation and plundering in Syria, remove illegal unilateral sanctions and stop creating and aggravating humanitarian disasters”.
TWO US BANKS IN TROUBLE: Two US banks are in trouble – Silvergate Capital and Silicon Valley Bank. Silvergate is a traditional bank founded in 1987 and based in California. However, it has become increasingly enmeshed in the Crypto world via loans made to Crypto exchanges and as a result it was hit hard by the collapse of the US$32 billion FTX exchange.
Silvergate is reportedly the first traditional bank to be sucked into the domino effect of FTX’s bankruptcy. Before trading ceased in its stock, Silvergate’s share price had fallen 97% from its all-time high in November 2021. Its assets reportedly amount to only US$11 Billion so it’s failure cannot be any systemic threat to the US banking system. Its effect on the world of Crypto, however, may be much more consequential.
The collapse of Silicon Valley Bank (SVB) is potentially more worrying. SVB specialised in financing company start-ups and had become the 16th largest US bank by assets. It reportedly had US$209 billion in assets and approximately US$175.4 billion in deposits. Its demise represents not only the largest bank failure since Washington Mutual in 2008, but also the second largest failure ever for a retail bank in the United States.
In response to the sudden collapse, Treasury Secretary Janet Yellen convened an emergency meeting of top US banking regulators. A Treasury statement was made afterwards — “Secretary Yellen expressed full confidence in banking regulators to take appropriate actions in response and noted that the banking system remains resilient and regulators have effective tools to address this type of event”. The Californian Department of Financial Protection and Innovation (DFPI) closed SVB and appointed the Washington-based Federal Deposit Insurance Corporation (FDIC) to take it over.
For customers with account balances below the FDIC insured limit of $250,000 per depositor, per insured bank, there should be no financial loss. In fact, the FDIC said the new institution would continue to clear checks that were issued by Silicon Valley Bank and insured depositors could access their money as early as Monday, March 13, 2023.
This is all standard operating procedure. BOOM does not see this as causing any systemic banking effect. The shares of the big banks, JP Morgan, Wells Fargo, Citibank and Bank of America were not affected adversely by the end of trade on Friday. Compared to the previous day’s close, JP Morgan rose by 2.54 %, Citibank fell by just 0.53%, Wells Fargo rose by 0.56 % (with a strong recovery after falling sharply through the day) and Bank of America fell by 0.88% showing a strong rebound after falling previously.
US BANKRUPTCY FILINGS: The number of US companies filing for bankruptcy surged in January to the largest since 2010. Numbers were similar in February. The pile of dollar-denominated corporate bonds and loans trading at distressed levels rose to $216 Billion.
This sounds dramatic but it is, in fact, a tiny number when looked at in the context of $US125 Trillion in total US asset value. It amounts to just 0.17 % of the total.
QB Explained: https://boomfinanceandeconomics.wordpress.com/2019/12/15/boom-as-at-15th-december-2019/
and BOOM’s Perfect Economy: https://boomfinanceandeconomics.wordpress.com/2020/01/18/boom-as-at-19th-january-2020/
In economics, things work until they don’t. Until next week. Make your own conclusions, do your own research. BOOM does not offer investment advice.
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BANKS DON’T TAKE DEPOSITS, THEY BORROW YOUR MONEY: LOANS CREATE DEPOSITS — that is how almost all new money is created in the economy (by commercial banks making loans). https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/money-creation-in-the-modern-economy Watch this short 15 minutes video and learn as Professor Richard Werner brilliantly explains how global banking systems really work.
AND Watch for 4 minutes, this Bank of England explanation: Money is essential to the workings of a modern economy, but its nature has varied substantially over time. This video describes what money is today.
Most economists are unaware of this and even ignore the banking & finance sectors in their econometric models. EMAIL: gerry{at}boomfinanceandeconomics.com
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John Titus (Best Evidence on a YT channel) shows the state of banking-YIKES!!!
Go to 6:38 of the video to see the trouble banking is in. One graph tells the story.
The US banking industry is bankrupt.
Titus makes a compelling case the FED is intentionally collapsing the economy. See 32:00 to 42:00 minutes for that case.
Excellent work as usual from John Titus…
I’m gonna watch it even though I find the guy cringe worthy about half the time. He does get it just right on occasion.
Aw shit. Wrong Titus! I thought it was the comedian.
Boo!
Yes agree with Titus, Steve, thank you. They HAVE to collapse economies again soon – otherwise – hyperinflation like last time when $19 Trillion was required to temporarily save the system then Covid conveniently came along (surprise). I am intrigued to know how they will lock down this time around.
Another great article Peter. I think people are underestimating what svb going down is all about. Stable coins and Binance seem to be the target. While at the same time pushing people to take their wealth to crypto. Funny how that works. I do not think this is the big one and even if it is it will be only a holdup of about a week/month or two, with a 25% haircut. Hardly worth freaking out about.(I recently locked in some funds in at 5% for a one year term, so I’m not speaking outta my ass.) Does it suck yes. But the control they currently hold with the system as it is, is awesome. People are working two jobs here to make their mortgage payments. They are drowning in debt and paying insane levels of taxation. People have almost no discretionary money. Rent and/or Mortgage interest is eating their paycheques. The markets are full of people searching for deals on food to eat tonight. I know people who buy and eat the cheapest, unhealthy food just to save 5 dollars this week. The people are really running fast on the hamster wheel, and they are falling behind. This is right where they are the most productive, and consume very little. No Amazon boxes of trinkets are piling up peoples door anymore. I also think this latest svb debacle looks a lot like a digital J6. Domestic terrorists caused the bank run through disinformation and anonymous online discourse. Rumors and Memes by unwoke Right wingers threaten our Democracy they will say. They need to give people a Digital Online ID before rolling Cyprus Style into a CBDC. The collapse is here but there are many goals to achieve along the way. I think your articles are about to become very Popular. 😉 lol
Thanks for your support Babble, I think you are right-on, all round but how CBs react and where they go next is as unpredictable as waiting for the fish to bite in an empty pond. I am reading this :
worth visiting the synopsis – I am amazed how accurately we are following its plot! Say no more!
The one thing that I didn’t really appreciate, was how many people would run from the smaller banks and take deposits to bigger ones. I mean sure, you want some heft behind your bank. But that people don’t think about that beforehand? Or that their support is so easily withdrawn, just as it was from Mom and Pop shops during the lockdown and given over to Wal-Mart? And now given over to JP Morgue. Wild times.
And yes I’ll have to check that out. I’m still getting a kick out of Yuval’s Cartoon Comic Book
“Sapiens: A Graphic History. Vol. 2
The Pillars of Civilization.”
I read Yuval’s ‘Sapiens’ a while ago- interesting take on modern living. I have always doubted that relying on distant supply chains from unknown people is a model that can’t survive for that long – it’s fragile.
I agree with you that it makes no sense to go from small bank pan to the big bank fire – same boss with zero returns. Given that it is unlikely that interest rates will go much higher, short duration US bonds must be a no-brainer? The upside on capital gains is good and almost a 5% coupon makes this one place to go; so many are piling in.
Oil might break to the 62.14 support level close to it. I dumped all my jerry cans into the tank or what I could. making room for some cheap gas here.
Yep Babble – oil is on the way down in the coming months – I wrote about it long ago: https://austrianpeter.substack.com/p/the-financial-jigsaw-part-2-the-end?s=w
The US Petro Dollah is dead, we are now officially fuked.
I refuse to become involved in a world currency. Shit! I’m still using a 4G flip phone! You really think you’re gonna drag me farther into the swamp?
You’re gonna need a bigger gator!
LOL, CS – I’m on 4G too (no flip) – and I ain’t going anywhere either. I avoid anything with ‘smart’ in it.
Peter, the way I see it, the world is going to NEED a few good Luddites once the dust settles.
;o)
Me? Where are they? I will join them tomorrow 🙂
Obama saved the banks with a bailout but tied the same Diversity string to Finance that ruined Education, TV and Hollywood, the Military, and RRs. Finance also became eat up with stupid like a house with all the wood eaten by termites. This bailout may have stopped the bank runs but will not solve the bank and Wall Street investment problems. The fresh cash will cause some inflation, but if the Fed raises rates more, the Economy stalls and spins. Mexico is joining the BRICS+ ; millions of invaders are pouring through the Walls; we have a corrupt and incompetent Dictator and Senate; Vandals inhabit our cities; Roman history seems real. PS: The Fed plans to eliminate all cash, cryptos, even bartering , and Tokenise everything you own , and automatically add it to your FedCoin Card which you will receive in 2023. For example, your house is worth $350,000 or 350,000 CBDC Tokens. Ditto your car, your Securities, whatever. If you are a bad boy and lose Social Credit Points, you can’t spend FedCoins 10 miles outside of your home, or buy meat, use your computer, etc. US House Rep Tom Emmer has a bill to outlaw Retail CBDCs in the USA; please write your representatives supporting the Bill. We don’t need Rothschild FedCoins; we already have digital money ; only the CBs want and are pushing FedCoins for their Global tyrannical Absolute Power Grab. You would have to be insane and want to become a slave to support FedCoins.
“Fed raises rates more, the Economy stalls and spins” – so true rhs jr. But will they? The jury is out at present and the Fed is in a dark corner, they can’t win this one IMHO. You need to read this great novel which I am on at present, set in 2029. They have replaced the dollar with the ‘Bankor’ – fascinating and very much true so far!
What do you think, Peter?
I am watching today Mary – steady around $2 – it’s a penny stock by any other name. Yes this could be the canary-in-the-coalmine; we have been watching it for sometime.
The markets are nervous and sliding; I am telling my clients to move into TSY Notes (they have to go up) and you have the coupon too. Make sure you have $ on hand and a little silver because I smell a bank holiday. Go woke – get broke!
No idea why people are moving $ to the Too-Big-to-Fails – makes no sense. Panic I guess. I am avoiding anything ‘smart’ including Bitcoin and anything I can’t get my hands on. https://www.zerohedge.com/markets/hudson-why-banking-system-breaking
I can’t say anything more than this but I have it on good authority that one very large tech company had hundreds of millions, maybe billions, in cash in SVB and moved it to Bank of America..smh.
Many are Mary – I hear on the Grape Vine that Harry & Meg has most of their loot with SVB – yet to be confirmed
You might find these two entries interesting
https://moneycircus.substack.com/p/insight-china-plies-peace-as-wests
https://moneycircus.substack.com/p/crisis-update-bank-runs-as-pretext
This guy knows exactly what he is talking about – good find Mary – really good reports ( I have subscribed) and exactly in line with my thinking. Covid was a money event and I covered it last year which might help an understanding of Repo: https://austrianpeter.substack.com/p/a-perfect-storm-the-money-crisis?s=w
And he’s also right about Richard Werner – BOOM always keeps his video up and here he is on CBDCs:
Thanks, Peter. I subscribed, too.
There are some good Substacks out there, Mary – and it’s growing like Topsy! Join the club!
The Iran-Saudi deal brokered by China is great for all parties involved. China has been champing at the bit to create a new Silk Road, and it looks like this could be its chance; for Iran and SA, a combined Islamic Republic would be a return to their historical roots.
The big loser is Israel. The occupying regime is fracturing the country; there are daily protests happening. Personally, I always wondered how long it would take for the most militant people on Earth to live in close quarters before they started fighting each other, and it seems to be happening now. Peace does not follow these lot. They have abused, agitated and covertly murdered all of their surrounding neighbors, flexing their American taxpayer-funded muscles, and we are thus rightly despised for it by the rest of the Middle East, for warring with them for Israel.
There is blood in the water, and the other sharks can smell it: Israel is weakening, and will quite possibly have a revolt soon. This Iran-Saudi accord is a direct shot across Israel’s bow. If those two countries, along with Russia and China, team up, the occupying Israeli regime may turn desperate and “defend itself,” which would be the match that sets off the powder keg. (Really, they have been fighting out there in that godforsaken patch of sand for over 10,000 years — so you may as well write off any lasting peace, no matter who does what. There is no “get along” with these guys, only “get it on.”)
It should be very interesting to see how this all plays out in the near future. This could literally be where it all starts. You know as well as me these people are just that crazy, and have all the sieges ready for war.
Bang on target Captain, thank you for putting it so succinctly. Agree all you say. There are so many small fires smouldering away and one could burst into flames anytime. We are living on one knife-edge of the seesaw and the banks sit on the other. Happy days! It’s as if we are in a children’s playground:
You ever see the Princess Bride? It feels like we are walking through the Fire Swamp where the Rodents Of Unusual Size lived.
Woo Ha – I didn’t see that – I tend to avoid any movie that ripples my soul but I do have good memories of bad times that never happened – YET: