Cryptocurrency for Beginners: with Crypto Casey

Wall Street is Suppressing Bitcoin (BTC Short Squeeze?) - Last Week Crypto

September 05, 2021 Crypto Casey Season 2021 Episode 35
Cryptocurrency for Beginners: with Crypto Casey
Wall Street is Suppressing Bitcoin (BTC Short Squeeze?) - 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 29th through September 4th.


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This week we will discuss a few economic events influencing the crypto markets, whether September will prove bearish or bullish for bitcoin’s price, what just happened with the supply of ether, and how Wall Street could be massively suppressing the price of bitcoin.


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Here we are, in the fabled month of September, a month that historically proves bearish for crypto. But what does this September have in store for us?

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 a few economic events influencing the crypto markets, whether September will prove bearish or bullish for bitcoin’s price, what just happened with the supply of ether, and how Wall Street could be massively suppressing the price of bitcoin.

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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. It’s time for Last Week Crypto.

1 - Looking at the top cryptocurrencies by market cap, bitcoin up 1.9%, ETH on a tear, up 19.1%

Cardano, finally cooling off a bit, down 2.2%, and Binance Coin, up 0.6%.

2 - Looking at the top gainers this week:

Bitcoin Cash ABC a top gainer yet again this week, up an insane 287.3%, Fantom up 113.4%, 

IOTA, a blast from the past, up 71.4% and Solana, still crankin’, up 59.8%
____________

Nice. So let’s do a quick recap of some of the less interesting economic events influencing the crypto markets by proxy. As we discussed last week, did the optimism surrounding the impending jobs report pan out?

Eh, not exactly: 3 - Jobs report disappoints — only 235,000 positions added vs. expectations of 720,000.

And 4 - Weak Job Gains Leave Washington on High Alert.

The Federal Reserve and White House had hoped for strong job gains, and the August report did not deliver. That makes coming numbers critical.

And “coming numbers” refers to the release of the CPI or consumer price index report on September 14th that will likely further stoke inflation concerns, which, in tandem with jobs report numbers, will dictate what is likely to play out at the FOMC, or Federal Open Market Committee Meeting on September 22nd.

The to taper or not to taper conundrum in the short term will resolve to the latter, meaning the Fed will probably not start tapering any time soon.

And by tapering, we mean that the Fed will continue buying bonds to keep the money supply flush and interest rates, or the cost to borrow money, pretty much non-existent. 

We’ve dug into that quite a bit over the past few weeks, so basically it means bullish sentiment in the traditional markets will likely continue in the short term:

even though it’s becoming quite clear that more liquidity is not having an impact on jobs, managing inflation, or anything really except keeping reverse repo activity high and keeping the stock market propped up, which, by proxy, keeps the crypto markets rockin’, for now.

Sweet. Next, let’s think about if September 2021 will defy historically bearish performance or capitulate.

So over the past 8 years, Septembers harbor a negative 8% price decrease for bitcoin, with the exception of only two out of the past eight years:

In 2015, the price of bitcoin in September went up 4%, and in 2016 the price of bitcoin went up 7.5%. 

So, what about this year in 2021? Well, so far bitcoin has performed contrary to previous year’s months. However, there seems to be a fairly equal split between people with bull versus bear sentiment.

5 - Some are calling for a peak in bitcoin’s price around September 27th where the golden 51/49% ratio predicts the end of the bitcoin bull cycle.

While others turn to the 6 - bitcoin stock-to-flow model which predicts $100K per bitcoin by Christmas. Note here that we are currently between a bottom and top here. This model also predicts bitcoin could reach a floor of $43,000 per bitcoin at the end of September.

As usual, it’s anybody’s guess when trying to predict the short term price of bitcoin and when the bull cycle will end, assuming it’s still raging in the first place.

So let’s break down this interesting revelation I’ve been pondering this week into different concepts that paints an extremely bullish scenario for the price of bitcoin short and long term.

Concept 1: Equity vs Debt-based money

Bitcoin is equity-based money, meaning there is a real underlying asset behind the value of the money determined by the free market.

Before the US went off the gold standard, the US was an equity-financed economy until 1968, meaning all of the debt borrowed by corporations outside of the financial realm was backed by real savings.

Basically, the total dollar value of savings made by individuals and companies in the real economy equaled the total amount of debt corporations borrowed to grow their businesses.

During this time, we were saving more of the money that we earned rather than using it to consume or buy products and services. So we consumed less than we produced. 

So during this time, debt in the US economy was backed by real US dollars, and US dollars were backed by gold. Hence the equity-based monetary system, where money was backed by underlying assets.

After we abandoned the gold standard, the US turned into a debt-based economy and started using circulation credit, or fractional reserve banking.

If you’d like to learn more about fractional reserve banking and the current structure of the traditional financial ecosystem, check out my video breaking it down for beginners’ by clicking on the link above.

In a debt-based economy that uses circulation credit, or fractional reserve banking, instead of debt being completely backed by 100% cash, the banks are allowed to keep only a fraction of the cash and lend out the rest in ad finitum. 

For example, let’s say for every $100 you deposit into your account, per the fractional reserve banking system, the bank only has to keep $10 of the total deposit and is allowed to lend out the rest.

This fraction of deposits banks are required to maintain are known as reserves. So the $10 fraction of the $100 you deposit into your bank account, is held as reserves.

And the fraction of deposits banks are required to maintain are known as reserve requirements.

Hence the term, fractional reserve banking. So, since bitcoin has garnered the attention of the traditional financial sector, Wall Street has started to treat bitcoin, an equity-based instrument, as a debt-based one by piling debt claims on it.

Let’s explore this in our next concept. 

Concept 2: Real Demand vs Artificial Supply

If you watch this channel frequently, you know that prices of assets like gold and bitcoin are determined by supply and demand. When demand is high, and the supply is low, we see the price of the asset increase.

When demand is low, and the supply is high, we will see the price of the asset decrease. But there’s something interesting going on.

Wall Street is treating bitcoin the same way they treat gold, except in the scenario of gold, they have the market cornered and can largely control it, for now. However with bitcoin, it’s not the case at all.

Let’s talk about how Wall Street has been suppressing the price of gold for years by piling debt claims on it, and how they have potentially been suppressing the price of bitcoin using the same antics.

The long and short with gold, is that there are more paper claims to gold than actual, physical gold. Sure, people can buy and store physical gold themselves, however most of the “gold” people own is just a paper saying they own “x” amount of gold and it’s stored in some vault in another country.

Thinking back to the relationship of the price of assets and supply versus demand, imagine if the real demand for gold is being met and satisfied with an artificial supply of gold.

Yep, and that’s absolutely how the gold market works. The upperhand Wall Street has in the gold market is they pretty much own, operate, and control the clearinghouses. 

Wall Street controls most of the gold in the world, and by Wall Street I mean all of the global banks. The central Banks and the LBMA, or London Bullion Market Association, control most of the underlying collateral gold - not individuals.

So as people want to redeem their actual gold, Wall Street and banks can pretty much trade with each other and fulfill any demand because they control the actual supply.

This, however, is not the case with bitcoin. The opposite is true with bitcoin, most bitcoin is owned and controlled by individuals. But let’s talk about the similarities between Wall Street’s relationship with gold and bitcoin first. 

Just like with gold, currently there are more paper claims to bitcoin than actual bitcoin.

How is it so? Well, with the introduction of leverage, margin, and futures trading in cryptocurrency, basically Wall Street applying old debt-based activity to an equity-based money system, bitcoin is heavily rehypothecated. 

But instead of Wall Street owning, operating, and controlling the supply of bitcoin, in the event of a run on bitcoin, there absolutely will not be enough bitcoin to fulfill demand, because most bitcoin is actually stored in privately owned wallets off of exchanges and out of circulation.

So let’s imagine a scenario where Wall Street has largely shorted bitcoin, meaning they expect the price to go down, but then, the price goes up and Wall Street is forced to close their positions regardless of the price of bitcoin, that could be a problem.

Bitcoin is currently scarce on exchanges, and during bull markets like what we are likely still in at the moment, bitcoin gets even more scarce.

If you had a big intermediary like Coinbase, Binance, or Bitfinex with lots of open leveraged short positions experience a classic run on the bank for bitcoin and there’s not enough of the underlying collateral to deliver, the price of bitcoin could spike. Spike by a lot.

These big institutions would be desperately trying to find collateral that they ultimately wouldn’t be able to get because it simply doesn’t exist. 

Wall Street and institutions do not own or control most of bitcoin, and never will at this point. It’s far too late when you look at the current amount of bitcoin in circulation and the velocity with which new bitcoin is minted.

So let’s think about it, if there is real demand for bitcoin and it’s being met and satisfied by an artificially inflated supply of available bitcoin, what is the true price of bitcoin?

Well, it should be much much higher. If you create an artificial supply of something, which Wall Street has done with gold and is now doing with bitcoin, all else equal, the price of the asset is suppressed.

And if, but more likely when, a short squeeze occurs, bitcoin hodlers will have the last laugh.

This is why it’s so important to 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.

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.

Cool. And as if real demand for bitcoin being met with an artificially high supply due to leverage and rehypothecation causing price suppression isn’t exciting enough, check this out:

7 - More Ethereum Has Been Burned Than Minted in the Past 24 Hours. EIP-1559 was supposed to bring deflationary pressure to the network. It's working.

8 - Ethereum records negative daily issuance for first time after EIP-1559

So as the bitcoin supply slowly increases at about a 1.77% inflation rate, the ether supply is shrinking, hence deflation.

Imagine how much havoc an eth short squeeze would have on the price.

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 what do you think of the possibility of Wall Street suppressing the price of bitcoin?

Is the short squeeze of all short squeezes on the horizon?

Could a WallStreetBets-esque effort to get as many people as possible to transfer their bitcoin from exchanges to their own private wallets, and taking advantage of a potential short squeeze possible?

Let me know in the comments below.

Be safe out there.



Introduction
Crypto.com Exchange
Market Movements
Jobs Report Disappointing
CPI Report & FOMC Meeting
Tapering Unlikely, Market Bullish
Will September Prove Bullish or Bearish for Bitcoin?
Is Wall Street Suppressing Bitcoin Price?
Equity vs Debt-Based Money
Fractional Reserve Banking
Real Demand vs Artificial Supply
Wall Street Suppresses Price of Gold
Wall Street Doesn't Control Supply of Bitcoin
Could Bitcoin Short Squeeze Cause Price Explosion?
Get a Hardware Wallet ASAP!
Protect Your Ability to Generate Income
ETH Supply Shrinking
Outro