Cryptocurrency for Beginners: with Crypto Casey

Can Leverage Push BTC to $100k? (In a Bull Trap?) - Last Week Crypto

August 16, 2021 Crypto Casey Season 2021 Episode 32
Cryptocurrency for Beginners: with Crypto Casey
Can Leverage Push BTC to $100k? (In a Bull Trap?) - Last Week Crypto
Show Notes Transcript Chapter Markers

This is another episode of a weekly cryptocurrency news series called Last Week Crypto.

We cover the latest global news stories affecting the cryptocurrency markets August 8th through 14th.


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======== VIDEO SUMMARY ========

This week we will discuss how crypto, against all odds, miraculously pulled through the most FUD-laden two months of its entire existence, the crypto bill, Tether’s Q2 attestation, the Fed’s new repo facilities, and whether or not we are back on track for an exciting and profitable bull run.


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Back in the studio after travelling to Alaska the last couple of weeks. Guys, super bullish on Alaska, so if you ever get the chance, check. it. Out.

Hello, I’m Crypto Casey and welcome to another episode of Last Week Crypto.

Every Sunday, we review the performance of the largest cryptocurrencies, top gainers, as well as the latest global news stories affecting the crypto markets this past week.

This week we will discuss how crypto, against all odds, miraculously pulled through the most FUD-laden two months of its entire existence, the crypto bill, Tether’s Q2 attestation, the Fed’s new repo facilities, and whether or not we are back on track for an exciting and profitable bull run.

This week’s episode is brought to you by Crypto.com, an exchange with over 100 different cryptocurrencies and over 20 different fiat currencies.

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Also, every Wednesday I conduct a weekly AMA or an “Ask Me Anything” at Instagram.com/CryptoCasey.

So use the link to my one and only official Instagram account listed in the description area to follow me and ask me anything you want, every Wednesday.

Awesome. Let’s hit Last Week Crypto.

1 - Looking at the top cryptocurrencies by market cap, bitcoin up 9.3%, ETH up 12.6%

Cardano, killing it, up 55.9%, and Binance Coin, up 18.5%.

2 - Looking at the top gainers this week:

XDC Network up 82.3%, XRP, up 64.1%

QTUM up 60.1%, and Axie Infinity up 58.8%

Recent third-party attestation by an independent account firm out of the Cayman Islands that signed off on a slightly more in-depth report fleshing out a bit more of the paltry pie chart pdf provided last quarter

Nice. So despite it all: huge demand in reverse repo activity, China kicking out miners, crypto environmental concerns, the impending US debt ceiling, the July 28th SEC deadline to address crypto regulations, Yellen’s closed door meeting about stablecoins, 

The mostly kicked-down-the-road eviciton/rent/mortgage moratoria, the passing of a crypto bill with overly broad tax rules, the largest DeFi hack to date of over $600 million dollars, Tether coming into the crosshairs for bank fraud, 

their most recently published attestation of reserve assets, and everything in between we’ve been discussing the past month now: 

Despite it all, the crypto market either didn’t care, didn’t know, manipulated its way through, powered through with sheer insanity, or a mix of it all, because it largely didn’t react, and eventually broke upwards over its 200 day moving average, possibly putting us back in bullish territory.

Although the infrastructure bill that was passed was bearish for crypto, the market performed otherwise. In the bill, the section related to crypto calls for an extreme increase in oversight related to IRS and tax guidelines: 

Much of which would put a large burden on many service and product providers in the crypto space like exchanges, miners, validators, software developers, and decentralized financial applications.

However, as fervently as the government and regulators talk a big talk about cracking down on crypto, every time they’ve done so recently, they end up sugar coating it or maybe, for the time being, are actually using a velvet glove instead of brass knuckles.

3 - Treasury Seeks to Quell Fears Crypto Tax Rules Are Overly Broad 

4 - The U.S. Treasury Department is set to clarify that only cryptocurrency companies it considers brokers will need to comply with proposed IRS reporting requirements, aiming to quell concerns over a provision in the bipartisan infrastructure bill passed by the Senate.

5 - Other firms key to the nearly $2 trillion crypto market -- from developers and miners to hardware and software providers -- won’t have any new requirements, so long as they don’t also act as brokers, according to a Treasury official. 

The Treasury’s guidance won’t grant blanket exemptions based on how firms identify themselves and instead will focus on whether a firm’s activities qualify it as a broker under the tax code, the official said on condition of anonymity to discuss internal deliberations.

6 - The new reporting rules, if signed into law, won’t go into effect until 2023, giving the government and cryptocurrency companies time to update their systems to send the data prescribed in the law. It also gives the industry time to ramp up lobbying efforts.

Sweet. Another source of FUD, the latest DeFi hack on Poly Network resulting in over $600 million dollars of stolen funds, appears to have been rectified as well.

7 - Hacker Returns Stolen Cryptocurrency in Heist Reversal: All stolen crypto assets have been returned, except those that were frozen, Poly Network says

8 - The hacker or hackers who plundered more than $600 million dollars of cryptocurrency assets from a decentralized finance platform finished returning almost all of the money Friday, marking a surprise conclusion to a heist that rattled the crypto industry.

9 - The assets were transferred back to blockchain addresses controlled by Poly Network on Friday, according to an emailed statement from the company. All that remains outstanding are $33 million of tether tokens, frozen by the company Tether in the effort to recover the stolen goods.

Cool. Speaking of Tether, they finally published their Q2 “audit,” kind of. It wasn’t an audit; it was just a third-party report where an “independent accounting firm” out of the Cayman Islands signed off on a slightly more fleshed out version of the paltry pie chart pdf they published for their Q1 “audit.”

And without going into too much detail, here are a couple items within the attestation I found interesting, it reads:

10 - At the reporting date, Tether Holdings Limited is the defendant in four ongoing legal cases, the outcome of which cannot yet be reasonably reliably estimated by management, and any contingent liability has not been accrued

11 - The digital asset industry is innovating rapidly, with a trend lowering cost, increasing accessibility and adoption. However, any users of digital assets, including those issued by the Tether Holding Limited group, should firstly inform themselves of the general risks and uncertainties, including evolving legal and regulatory requirements.

12 - And here’s the breakdown of their underlying reserves. As we’ve discussed at length in my previous video series about Tether, note the commercial paper and certificates of deposit section that still keeps us in the dark about which companies Tether has loaned money to by ownly listing the self-reported rating of the loans from A-1+ down to A-3, as well as a mysterious ”other” category.

So at the end of the day: 13 - Tether Sheds Light, but Not Enough, on Its $63 Billion Reserves

The stablecoin has secured itself a critical place in the crypto ecosystem, but its holdings fall short compared with those of prime money-market funds.

14 - The good news is that with more detailed disclosure and the stamp of approval from an accountant, it is less likely that Tether, the company that issues the coin, and linked crypto brokerage Bitfinex are repeating the illegal practices that led to an $18.5 million settlement with the New York Attorney General earlier this year.

15 - The bad news is that the disclosure is still far less than is provided by regulated money-market funds. The accountant’s assurance is limited to one day, and it is based in the Cayman Islands—albeit part of Moore Global, a second-tier international firm. 

And the portfolio still includes plenty of assets that would be hard to sell to support the value of the coin in an emergency.

So, we’ve discussed extensively in my three-part video series about the current structure of the traditional financial system, as well as the current structure of the crypto markets and Tether’s precarious, pervasive, and vastly extensive role in the global cryptocurrency ecosystem at large - 

Which is extremely alarming and was coming to a head at the end of last month with the SEC deadline to address crypto regulations and a closed-door meeting with US treasury Secretary Yellen, Fed chair Jereome Powell, and regulators held specifically to discuss stablecoins. 

However, what came shortly after this meeting, to my complete and utter surprise, was not a smack down, but actually a potential safe guard for crypto service providers like exchanges and entities like Tether Limited in the event of a run on crypto via the institution of standing domestic and international repo facilities. 

I explain my thoughts more extensively in this last video, so you can click on the link above to check it out.

And just this week, more articles about the new repo facilities hit the press that further support my prediction of these being put in place as a fail safe to prevent a collapse of the crypto markets since it's been so inextricably intertwined in the entire global financial ecosystem, which includes the Fed’s precious stock market.

Check it out: 16 - NY Fed's Logan says new repo facilities should boost confidence in money markets

17 - A major lesson from the global financial crisis and from the financial shock caused by the coronavirus pandemic is that central banks should maintain the tools needed to quickly address market disruptions caused by firms facing immediate liquidity needs, a senior official for the New York Federal Reserve said on Wednesday.

18 - Two facilities established by the Fed last month, including a domestic standing repo facility (SRF) and a repo facility for foreign and international monetary authorities, should serve that role and help markets function smoothly during times of stress, said Lorie Logan, an executive vice president in the Markets Group at the New York Fed and the manager of the System Open Market Account.

19 - “The presence of these facilities should create confidence that liquidity at a backstop rate will be available in overnight money markets as needed, potentially limiting the demand for precautionary liquidity and the run-like dynamics that can occur,” Logan said.

Nice. And here’s another excerpt from an article that goes into more detail about the international repo facility.

20 - The other facility, the FIMA repo facility, will serve foreign and international monetary authorities. Under the FIMA facility, the Fed will enter into overnight repurchase agreements “as needed” with foreign official institutions secured by their holdings of Treasury securities in the custody of the Federal Reserve Bank of New York. 

The initial rate for this facility will be 25 basis points, with a counterparty limit of $60 billion. The Fed announcement states, “by creating a temporary source of dollar liquidity…, the facility can help address pressures in global dollar funding markets that could otherwise affect financial market conditions in the United States.” 

Interestingly, the FIMA facility was NOT specifically recommended in the Report, nor does the Fed announcement provide any further explanation of why the U.S. should take on the counterparty risks for foreign governments in times of financial stress.

Well, like I said before, based on the impeccable timing of the SEC deadline to address crypto regulations, the closed-door meeting about stablecoins, and if you watched my video series, you are very well aware of the fact that: 

Tether, Bitfinex, Binance, and Huobi are all foreign entities that, through Tether’s precarious, pervasive, and vastly extensive role in the structure of the cryptocurrency ecosystem absolutely pose extreme risk to not only the US financial system, but the global financial system at large now - Making the US extremely keen on taking on some foreign counterparty risk.

So, before July 28th, there were zero fail safes for the crypto market in the event of a run on Tether, all while regulators seemed to be closing in on them.
However, it looks like the government recognized the massive systemic risk a sudden collapse of Tether would be on the entire financial world, and decided instead of issuing a smack down, instituting sudden, severe regulations and going in for the kill on Tether, 

they created out of thin air, what appears to be a way to circuitously “bail out” a bad Tether situation or similar. Again, for more detail about repurchase facilities, what repurchase agreements are, their function, and how they could be used to prevent a crypto collapse, check out my latest video breaking it all down.

So now that all of the aforementioned FUD landmines are behind us and crypto has emerged miraculously unscathed through either ignorance, apathy, manipulation, insanity, or a combination of it all: this latest article has also rekindled some short term bullish sentiment.

21 - Bitcoin’s Surge Lacks Extreme Leverage That Powered Past Rallies

22 - Bitcoin’s rebound from the depths of July is still missing one of its usual star players: Leverage.

23 - Crypto traders have yet to meaningfully pile on leverage -- essentially, borrowed money that can amplify returns or losses -- as they have in past rallies. 

The spread between Bitcoin futures and its spot price has shriveled relative to February, when the cryptocurrency was in the midst of a rally that ultimately reached an all-time high, suggesting that demand for leveraged long positions remains muted.

24 - “Typically we look at that as more of a strong-handed rally, which implies that the leverage portion of the rally comes later,” Ouellette, FRNT’s co-founder and chief executive officer, said on Bloomberg’s “QuickTake Stock” streaming program. 

“If that is the case, those $100,000 targets are very reasonable, I’d suggest. The last time we saw a move of this little leverage, we were pointing towards $20,000, and we didn’t really see the leverage come into the market in an aggressive way until we got to $40,000, which took us to $65,000.”

25 - In the cryptosphere, using leverage to boost returns -- which leaves traders vulnerable to having their positions automatically sold if prices drop -- has been in the spotlight in recent months. 

Many said a May crash in prices, which led to service outages at some of the biggest exchanges, was exacerbated by leveraged positions getting wiped out. By some accounts, the selloff led to more than 775,000 traders having their accounts liquidated over a 24-hour period, equal to around $8.6 billion worth of crypto.

26 - Since then, two of the biggest crypto exchanges -- Binance and FTX Trading -- reduced maximum leverage offered to traders. Last month, both capped it at 20 times, down from more than 100 for each. 

Though they’ve moved to rein in the most extreme use of the strategy, they are far from turning it off -- 20-times leverage still higher than what’s offered in standard U.S. stock-market accounts.

Translation? Well, basically leverage trading has been at all time lows since the mass liquidation that happened in May after all-time highs, followed by arguably the most fear, uncertainty, and doubt the cryptosphere has ever faced in its history of existence, 

compressed into a little less than a two-month period, causing crypto prices to decrease and become suppressed by both the FUD and crackdowns on leverage and margin trading on exchanges like Binance across the world, and just recently, we are now up 50%. 

Up 50% right after all the FUD passed and up 50% without the usual leverage present during a run. Last time we were at this low of a level of leverage, the price of bitcoin was at $20,000. And it pumped, without leverage to $40,000, and then once leverage heated up again, bitcoin went to $60,000.
 
Now, at around $47,000 per bitcoin at the time of this video, Bloomberg predicts once leverage catches up with this most recent breakout, it could potentially push us to that $100k price point. Before the end of 2021? It’s possible.
 
So this information about the current state of leverage and what has happened historically when its been in a similar state, on top of the fact that most of the hard-dated FUD is now behind us, we could very well be at the beginning or in the middle of a bull trend that may give way to that parabolic price movement we’ve all been waiting for.


Is Bloomberg trying to pump the markets and create a bull trap? Maybe. We will find out soon though. However, with inflation fears, delta variant concerns, potential shut downs again, leading to more money printing, and with 27 - Wall Street being the Most Bullish on Stocks in Almost Two Decades, there’s a very good chance this bull cycle will continue throughout the rest of the year and possibly into early next year.

Things that could cause a severe pullback are: a stock market crash, sudden, harsh regulations, a massive glitch, or another type of unpredictable black swan-esque event. Which we can’t really time the market for.

So moving forward, if we are indeed back on the bull trend, we will focus more in future videos on navigating this bull cycle with profit-taking strategies, tips on securing your crypto for the long term, dollar cost averaging into positions along the way, and other key things to stay mindful of to make the most out of this potentially life-changing opportunity of our entire lives.

In the meantime, we enter a bull trap or bull trend, make sure you are transferring your crypto off of exchanges to hold safely in a cold storage hardware wallet.

You can scroll down to the description area below to access the correct and official sites of my recommended hardware wallets.

BC Vault is my personal favorite, another option is the Ledger nano backup pack. So Scroll down to check them out.

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So if you’re interested in learning more about BlockFi, you can get up to a $250 bitcoin bonus when you use the link in the description area to sign up, all while supporting the channel.

Protecting your ability to generate income so you can buy more crypto is another important thing to consider. So if you’d like to learn more about the advanced technical concepts of blockchain and become a developer in the space, check out Ivan on Tech’s academy.

If you use the link below, you can access the academy at a discounted price, so scroll down, and check it out.

Awesome.

Well that was Last Week Crypto, with me Crypto Casey.

If you enjoyed the episode, please make sure to like this video and subscribe to my channel for more crypto content.

So are the bulls back in town?

Or are we still in bear country?

What do you think about Bloomberg’s data about the current leverage situation?

Let me know in the comments below.

Be safe out there.

Introduction
Crypto.com Exchange
Market Movements
Market's Reaction to FUD
Bearish Crypto Bill All So Bad?
Largest DeFi Hack All So Bad?
Tether Q2 Attestation All So Bad?
FED Created Potential Safeguard?
Current Leverage & Where Leverage Heat-Up Could Take Us...
No Absolute FUD in Future, Where Could We Go?
Could Be a Bull Trap, But Need More Time
Get a Hardware Wallet ASAP!
Earn Interest with BlockFi
Protect Your Ability to Generate Income
Outro