Retail Traders Who Drove 

Meme Frenzy Bail Out in

Bear Market

Vildana Hajric and Peyton Fort

Fri, June 17, 2022

(Bloomberg) -- Stock traders who whipped up the meme craze that took Wall Street by storm last year are furiously rushing to the exits.

Roughly 50% of single-stock retail positions in the Nasdaq 100 and a quarter of those in the S&P 500 that had been accumulated since January 2019 have been sold, according to data from Goldman Sachs Group Inc. In another sign their exuberance has faded, call-option volumes have reversed about 70% of their increases from the start of 2019 to November 2021, when tech stocks and Bitcoin peaked.

“While historically retail investors have bought the dip, this time they haven’t,” wrote John Marshall, head of derivatives research at Goldman Sachs.

Wall Street had been obsessed with how at-home traders were behaving during the pandemic when it came to the market. The boredom-markets-hypothesis -- which postulated that many of those were stuck at home with little to do turned to stocks to fill their time and satisfy their boredom -- became just about settled science. Stocks only go up, the saying went at the time, with indexes notching impressive returns even as the pandemic raged.

Hordes of day traders flooded social-media forums like Reddit and Twitter and fed each other information and trading tips. Their collective efforts famously pushed up shares of GameStop Corp. and AMC Entertainment Holdings Inc., among others, dealing a blow to big-name short sellers who had bet against those stocks.

But the tides have turned and 2022 has offered only rough trading and much gut-wrenching volatility. The gumption among the retail crowd to buy the dip has come to a test, with the strategy not faring as well in a market that’s seen the S&P 500 lose more than 20% and the Nasdaq 100 drop 30% this year. In fact, a retail-investor behavior measure by TD Ameritrade shows they have been cutting exposure to equities all year.

“The way that they’re likely going to be trading going forward is likely selling dips as they try to protect any gains that they may have or reduce further losses,” said Eric Johnston, head of equity derivatives and cross asset at Cantor Fitzgerald. “We can no longer count on the individual investor to be a backstop for this market.”

All manner of investments have lost value in 2022. Among the retail crowd, tech and biotech have been heavily sold, according to Goldman. Meanwhile, a basket of retail-favored stocks tracked by the bank has lost more than 40% year to date, and another made up of companies most frequently mentioned on social-media forums is down roughly 50%. Crypto, another individual-investor favorite, has also been stuck in the gutter.

A key concern for economists, now that the Federal Reserve is working on cooling the economy and inflation, is how the consumer will bear it out. And while a debate rages over the central bank’s ability to engineer a softish landing or over-correct into a recession, even a mild one, consumers have already shown some signs of pulling back. Data this week showed retail sales in May unexpectedly declined for the first time in five months.

Charles Schwab surveyed over 1,000 of its retail clients in April and found that 57% of respondents have a bearish outlook on the U.S. stock market for the second quarter of 2022, an increase of 29% from the same time last year. The primary driver of the negative outlook is the higher cost of living, followed by geopolitical concerns, according to Schwab.

“Consumers are pulling back,” said Chris Gaffney, president of world markets at TIAA Bank. “We’re seeing most investors sit this out, which is probably smart, sitting out the volatility.”

Still, Goldman says retail investors are continuing to put money toward exchange-traded funds, especially and dividend-focused ones, which have seen more than $30 billion of inflows this year.

“There has been a regime shift from the old FAANG megatech names to more defensive, income plays,” said Jane Edmondson, CEO and founder of EQM Capital.

ONE OF THOSE MEME STONKS

AMC shareholders vote against 

CEO Adam Aron's $19 million 

pay package

Fri, June 17, 2022

2021 Milken Insitute Global Conference

(Reuters) - Shareholders of AMC Entertainment Holdings Inc voted against its proposed executive compensation including that of top boss Adam Aron at the company's annual shareholder meeting, the theater chain said on Friday.

The vote at the meeting on Thursday was advisory, which means the company is not obligated to make changes to the compensation plan, it said in a regulatory filing 

https://www.sec.gov/ix?doc=/Archives/edgar/data/1411579/000155837022010100/amc-20220616x8k.htm

In 2021, Aron collected a total of $18.9 million in remuneration, down by about 10% from a year earlier, according to a filing

 https://www.sec.gov/Archives/edgar/data/1411579/000110465922052849/tm223267-1_def14a.htm#tECPE

Aron's pay last year included about $11.4 million in stock awards and his base salary rose about 32% to $1.45 million.

AMC said in April that the CEO and the company's finance chief were given larger base salary hikes "in recognition of their extraordinary efforts to ensure the Company's survival" during the COVID-19 pandemic.

Proxy advisers Institutional Shareholder Services (ISS) and Glass Lewis recommended that shareholders vote against the compensation plan, according to a report by Bloomberg News.

ISS and Glass Lewis did not immediately respond to Reuters' requests for comment.

The company's shareholders also voted to elect all the board nominees, including Aron.

After becoming one of the biggest victims of the pandemic, AMC is seeing a revival in business, driven by a steady stream of new releases such as "Doctor Strange and the Multiversity of Madness" and "Top Gun: Maverick"

Wells Fargo economist likens crypto collapse to the dot-com bust


Mark Vitner, senior economist for Wells Fargo, sees similarities between today's cryptocurrency collapse and the dot-com bust of more than 20 years ago.


By Mark Calvey – Senior Reporter, San Francisco Business Times
Jun 17, 2022


The collapse in bitcoin and other cryptocurrencies is raising the specter of a replay of the dot-com bust of more than two decades ago. That was an era of widespread pain, which could be playing out again.

As crypto lenders, hedge funds and individual investors face falling prices and margin calls, the pain could be felt in other parts of the financial universe, including the broader stock and real estate markets.


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“I liken what we’re seeing in crypto to both the dot-com crash and to an economic term called Gresham’s Law that says bad money chases out the good,” Mark Vitner, senior economist at Wells Fargo (NYSE: WFC), told me in a wide-ranging interview Friday morning.

“If you borrowed money to invest in crypto, or you borrowed money because you thought you were a lot richer than you were because crypto had appreciated, then you may be in a position where you have to sell something good to pay for something that now is bad,” Vitner said. “All the way up, people borrow against their best assets, so they tend to take on more and more risk.”

Crypto enthusiasts like to consider bitcoin to be a countercyclical store of value, much like gold. But Vitner isn’t buying it.

“I’m afraid that when it comes to crypto, we’re probably gonna see some carryover into the real estate market,” Vitner said. “We’re probably seeing some carryover to the stock market.”

It’s been an ugly week for crypto. Bitcoin and other cryptocurrencies have plunged, triggering margin calls. Some crypto "coins" have become essentially worthless. Celsius Network LLC, a large crypto lending platform, told customers it was pausing withdrawals, swaps and transfers due to extreme market conditions. Coinbase, once based in San Francisco before embracing a no-HQ strategy, will lay off 18% of its workforce, or about 1,100 workers.

On Friday, crypto hedge fund Three Arrows Capital hired advisers to consider its options after suffering heavy losses, the Wall Street Journal reported. The same day, Hong Kong-based crypto lender Babel Finance said it was suspending redemptions for all of its products, citing “unusual liquidity pressures.”

All that doesn’t bode well for crypto’s outlook, but it does provide more fodder for bitcoin’s critics.

"Currency has three purposes: to facilitate transactions, a store of value and a speculative component,” Vitner said. “Really, the only thing that bitcoin fulfills out of those three is the speculative component.

“Gold is probably a better store of value. It’s boring, but that’s what a store of value is,” Vitner added.

“I don’t know how much of a threat it is to the economy, but the parallels between crypto and the dot-com bust are kind of eerie,” Vitner said, pointing to the millions of dollars that dot-com startups paid in 2000 for Super Bowl ads, a move several crypto companies made this year.

In the dot-com bust that began after the stock market peaked in March 2000, dozens of startups met their demise. After the bust, no one wanted to be called a dot-com.

“I think the term 'cryptocurrency' will be retired," Vitner said.

Today’s speculation has been fueled in part by low interest rates that forced many investors to take on greater risk to achieve satisfactory returns. Those low rates are now just a memory as today’s startups in crypto, fintech and other sectors reconsider their spending.

In the wake of the dot-com bust, Bay Area venture capitalist John Doerr said, “Money that is priced irrationally, will be spent irrationally.”

Longtime Bay Area economist Ken Rosen, chairman of the Fisher Center for Real Estate and Urban Economics at U.C. Berkeley’s Haas School of Business, doesn’t share Vitner’s concern that crypto's collapse will spill into the real estate market. But asked whether crypto is a replay of the dot-com era, Rosen said: “There’s echoes of it. Cryptocurrency has the same feel to me personally.

“I thought it was not a sustainable boom,” Rosen said. "Cryptocurrency, honestly, felt like a Ponzi scheme to me. There is no inherent value in it whatsoever."


Ken Rosen, chairman of the Fisher Center for Real Estate and Urban Economics at UC Berkeley

SAN FRANCISCO BUSINESS TIMES

Federal Reserve Board: Recent Market Turmoil Shows ‘Structural Fragilities’ of Crypto

Amitoj Singh 

Fri, June 17, 2022

Drew Angerer

The Federal Reserve Board has released its twice-yearly monetary policy report, noting that "recent strains experienced in markets for stablecoins…and other digital assets have highlighted the structural fragilities in that rapidly growing sector."

• The report is a preview of Fed Chair Jerome Powell's testimony in Congress next week. Powell is expected to outline the Fed's plans to combat inflation. This week, Powell announced a 75-basis point rise in short-term interest rates, the largest increase in 28 years.

• The report, which is submitted to the President of the Senate and the Speaker of the House of Representatives, elaborated on how "generally, stablecoins that are not backed by safe and sufficiently liquid assets and are not subject to appropriate regulatory standards create risks to investors and potentially to the financial system, including susceptibility to potentially destabilizing runs."

• The TerraUSD stablecoin collapsed in dramatic fashion last month, functionally losing all of its value. The report pointed to the "concentrated nature" of the stablecoin sector in which Tether, USD Coin and Binance USD constituted more than 80 percent of the total market value, growing rapidly over the past year to more than $180 billion in March 2022.

• According to the report, "these vulnerabilities may be exacerbated by a lack of transparency regarding the riskiness and liquidity of assets backing stablecoins."

• The report added that the President’s Working Group on Financial Markets, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency have all made recommendations to address prudential risks posed by stablecoins.

The get-rich-quick days of crypto are over. Investors are losing their shirts, but industry players say this is healthy



Taylor Locke
Sat, June 18, 2022

It seemed like there was nowhere to hide in the crypto market this week.

Forced selling and liquidity troubles have “resulted in one of the worst quarterly price performances of the crypto space,” Lucas Outumuro, head of research at IntoTheBlock, wrote Friday in his newsletter.

“Overall, this week concludes a historic crash for crypto. We have witnessed record-level activity in multiple metrics as mayhem ensues throughout the market,” Outumuro wrote. “While it may still be too early to call the bottom, there are some evident similarities with previous bear markets.”

Bitcoin, the largest cryptocurrency by market value, fell below $20,000 on Saturday for the first time since December 2020. Ether, the second-largest cryptocurrency, dropped below $1,000, a level not seen since January 2021. The overall cryptocurrency market cap is below $1 trillion, from an all-time high north of $3 trillion.

As they anxiously watch on-chain movement, investors are wondering what’s ahead. Industry players are nearly certain that many projects will disappear, while adding that this reveals issues with centralization and leverage issues, but to some of them, there’s a silver lining.

“This is healthy,” Corey Miller, growth lead at cryptocurrency exchange dYdX, told Fortune.

Short-term adjustments

The domino effect within the cryptocurrency market will likely continue, at least in the short term, industry players predict. More pain is ahead for investors and projects exposed to excessive leverage or other operational issues. It seems to all trace back to Terra.

Though macroeconomic factors, including higher than expected inflation numbers in the U.S., set the stage for headwinds to come, the Terra ecosystem collapse—with failed algorithmic stablecoin TerraUSD (UST) and its original cryptocurrency Luna (LUNC) becoming nearly worthless—was an undeniable big bang in the space.

At its height, UST and LUNC were worth $60 billion, and after they collapsed to about zero in May, the impact on connected institutions became apparent this week. One of the cryptocurrency market’s biggest lending platforms, Celsius Network, paused its withdrawals on Sunday, sparking rumors of bankruptcy. Reports concerning the state of multibillion-dollar fund Three Arrows Capital followed soon after, fueling further fears of contagion and systemic risk. As days go on, more and more firms, companies, and platforms alike are coming forward with updates on their financial health or lack thereof.

From big players to everyday investors, the impact is being felt far and wide. Even major cryptocurrency-related companies, like Coinbase, Gemini, BlockFi and Crypto.com, recently announced layoffs and headcount reductions—several of them having just spent millions on Super Bowl ads as crypto’s market cap was near its peak.

“Things are really shaky right now and it’s going to take a while for things to stabilize. People are watching and waiting to see if something else will topple,” Michael Safai, managing partner at cryptocurrency trading firm Dexterity Capital, told Fortune. To be a “trusted ecosystem, investors have to feel confident that when they put money in, they’re able to get it out. This is definitely setting back a lot of that trust.”

Currently, we’re in a bit of a “hangover,” Jason Urban, co-head of Galaxy Digital Trading, told Fortune. In the near term, continued volatility is expected.

“I think for the next three to six weeks, people are going to be figuring out what exactly has happened, and who is well healed and who is not. That’s the first step,” Urban said. Subsequently, “there are going to be projects that don't make it, and there are going to be projects that become wildly successful,” he added.

What we are seeing now is “excessive risk being wiped out from the ecosystem,” Miller, growth lead at cryptocurrency exchange dYdX, told Fortune, which he says is a healthy development. “While it does reveal many interconnected links within crypto, these wipeouts support the idea that crypto as a whole remains resilient to existential risks.”

Looking ahead

Coming out of this crash, major players in crypto say changes are all but certain in the space. There might be a hesitancy towards certain projects, depending on their code and pitch, or with platforms offering extremely high yield by over-leveraging. Regulation may also soon follow, but many in the space remain bullish on future innovation.

Urban compared the current state of the crypto market to the bursting of the internet bubble in 2000. Looking ahead, he predicts that alongside the distress, innovation will come out of this time period. Many others echoed his remarks.

“In stocks and crypto, you will see companies that were sustained by cheap, easy money—but didn’t have valid business prospects—will disappear,” Mark Cuban, avid cryptocurrency investor, told Fortune. “Like [Warren] Buffett says, When the tide goes out, you get to see who is swimming naked.”

While this will be a “very bad” period for “poorly built or not very useful projects,” things will be “much less bad for valuable ones,” Sam Bankman-Fried, chief executive officer of cryptocurrency exchange FTX, also told Fortune. “I don't think we'll see sectors die out but we might see some rotate to more sophisticated versions.”

In the long term, Safai sees less excessive yield and leverage.

“There’s going to be a lot of shaking up to be done,” Safai said. “[T]his era of being able to get exceptional yield for nothing is over. This is when a lot of leverage is going to get pulled out of the system, and this will ultimately make the crypto ecosystem safer.”

This downturn has revealed the crypto-related projects and funds that were “utilizing more risk than what was prudent,” Miller said. “Similar to other downturns, many players become forced sellers and are subsequently washed out.”

In response to the carnage this time around, government regulators have already signaled interest in furthering the development of a regulatory framework for the cryptocurrency market. Those within the space have mixed feelings about government intervention, but it might be happening whether they like it or not.

“We believe that regulation is a positive development in our industry as it will force players to disclose more details on their activities so that clients can better assess the potential risks associated and how they vary across different companies,” Adam Reeds, co-founder and chief executive officer at cryptocurrency lending platform Ledn, told Fortune.

While recent events, like the collapse of UST and LUNC, has “posed a threat to crypto market sentiment and is a catalyst for regulation, it will ultimately not stop the growth of innovation in Web3,” Isla Perfito, chief executive officer of Sator, a blockchain-based entertainment platform, told Fortune.

Lessons learned

Though some industry veterans see similarities between this downturn and previous “crypto winters,” some lessons specific to this crash will carry extra weight going forward.

The “biggest thing” to come out of this downturn will be a “focus on fundamentals,” says Tom Dunleavy, Messari senior research analyst.

“In the past, … [t]he new and most interesting projects got the capital, and grew to unbelievably large sizes for what they were actually accomplishing (or could really accomplish),” Dunleavy told Fortune. “The focus going forward will be on strong protocols, strong teams, and strong use cases.”

He also predicts that this downturn will “essentially end” the “wars” between Ethereum (ETH) competitors. “There is going to be BTC [or Bitcoin] and ETH, and then a long tail of projects fighting for the remaining 20% to 30% of crypto market cap."

Major takeaways from this crash will also shape the future of the space, industry players say.

“Everyone is having to take a good hard look at their risk management right now, but exchanges seem to be pretty inoculated from this madness. With less capital at everyone’s fingertips, the question for traders will be how to more intelligently deploy capital and optimize activity in a world where leverage is limited,” Safai said.

This will be important because “a handful of trading firms make up a significant amount of market activity, and the market doesn’t want to be without them,” he said. “Shops that navigated other lengthy crypto downturns will lean on that experience and probably come out far stronger, to the benefit of the industry.”

This story was originally featured on Fortune.com

Crypto’s Excruciating Week Has Traders

Bracing for Next Crisis

Michael P. Regan

Sat, June 18, 2022

Crypto’s Excruciating Week Has Traders Bracing for Next Crisis

(Bloomberg) -- It was one of the most dramatic weeks in the short history of the cryptocurrency market, bookended by the type of announcements investors fear the most from a counterparty: We’re sorry, but we just can’t return your money right now.

In between, a nascent technocratic industry with grand ambitions to reinvent the financial system was rocked repeatedly by echoes of past crises in the old system. It was a week of margin calls, forced selling and important collateral being exposed as way too illiquid in a time of crisis. There were rumblings of hedge-fund blowups, tales of opportunistic predatory trading, job cuts and loud denials of problems from key players proven wrong almost immediately.

Amid it all, the myth was shattered once and for all that this new crypto financial system was somehow immune to -- or even able to benefit from -- the economic fundamentals currently punishing the old system.

It all started late Sunday, when a sort of crypto shadow bank called Celsius Network suspended withdrawals from depositors who had been enticed by sky-high interest rates that, in retrospect, were likely too good to be true. By the end of the week, on the other side of the world in Hong Kong, the digital-asset lender Babel Finance also froze withdrawals.

We’re working on it, both firms told customers, and no doubt they are. Yet speculation is growing that Celsius Network, at least, is drowning in what research firm Kaiko called a “Lehman-esque” position.

Like Lehman Brothers did almost 14 years ago, Celsius’s woes showed how interconnected big players in this financial system are and how fast contagion can spread, making this week’s drama the sequel to last week’s and the prequel to next week’s.

Many analysts have pointed to problems that Celsius is having with an Ethereum-linked token called staked ETH, or stETH -- a coin designed to be a tradable proxy for Ether that’s widely used in decentralized finance. While every stETH is meant to be redeemable for one Ether after long-awaited upgrades of the Ethereum blockchain take effect, recent market turmoil has caused its market value to fall below that level.

Terra Connection

Research firm Nansen has also identified Celsius as one of the parties involved when the UST stablecoin lost its peg to the dollar in May. The episode with that token, which was driven largely by algorithms, crypto animal spirits and untenable yields of 19.5% for depositors in the Anchor Protocol, triggered the loss of tens of billions dollars in the spectacular implosion of the Terra blockchain.

Nansen’s analysis confirmed that Terra’s Anchor program had been an important source of yield for Celsius, according to commentary from crypto exchange Coinbase. “In our view, this likely begged the question of how Celsius could fulfill its obligations without that 19.5% yield,” wrote the institutional team at Coinbase. That firm, by the way, said this week it will lay off 18% of its previously fast-growing workforce, joining other pink-slip-issuing crypto startups such as Gemini and BlockFi that are struggling amid a relentless plunge in asset prices that’s been dubbed “crypto winter.”

The drama ramped up on Wednesday with an alarming tweet that seemed to confirm speculation that had been swirling around one of the most influential hedge funds in crypto, Three Arrows Capital. “We are in the process of communicating with relevant parties and fully committed to working this out,” one of the firm’s co-founders wrote, without revealing any details about what exactly the “this” was that it was working out.

By the end of the week, the multi-billion-dollar fund’s founders had explained to the Wall Street Journal that they were exploring options that include a rescue by another firm and an agreement with creditors that would buy them time to work out a plan. Three Arrows, too, was a casualty of both the stETH woes and Terra’s collapse. The fund had bought about $200 million in the Luna currency used to back up the value of Terra’s UST stablecoin, according to the Journal. Luna, which sold for more than $119 in April, is now worth about $0.000059.

Just as Bear Stearns’s hedge funds were among the first to reveal problems from the subprime mortgage crisis, Three Arrows is likely not alone. The “cockroach theory” springs to mind: If you see one of those nasty bugs scurrying across the floor, chances are there are plenty more hiding behind the fridge or under the sink.

Crypto Shark Tank

In fact, the hot trade in crypto now is no longer pumping coins “to the moon” with tweets full of rocket-ship emojis, but rather trying to find where those roaches are hiding and make a meal out of them. Some crafty traders have dispatched bots to prowl blockchains in search of highly leveraged positions in danger of forced liquidation because the value of their collateral is no longer enough to back up their loans. If successful, they get a 10% to 15% cut of the collateral sale -- incentives paid out by automated protocols that are meant to protect them from insolvency.

As the dust settled at the end of the week, the damage was startling. Bitcoin has notched 12 straight days of losses, its longest sustained slump, and it breached $20,000 early Saturday for the first time since 2020. Flailing against a backdrop of monetary tightening, the world’s largest cryptocurrency is now down more than 70% from its highs in November when it was approaching $70,000. Ether dipped below $1,000, having sold for as much as $4,866 seven months ago. What was once a more than $3 trillion industry is now valued at less than $1 trillion.

And despite the similarity of past crises in traditional finance, there is one big difference as the weekend approaches: Players in the old-fashioned markets at least get to turn their machines off on Saturday and Sunday to get some sleep and lick their wounds. As a three-day holiday weekend approaches in the US, with forecasts for sunny skies in New York, those with heavy exposure to digital assets will remain glued to their screens, where crypto winter’s deadly blizzard shows little sign of letting up.

Bitcoin Plunges Below $20K for First Time Since December 2020; Ether Drops Below $1K


OGNYAN CHOBANOV

Greg Ahlstrand, James Rubin
Sat, June 18, 2022

Bitcoin (BTC) sank below $20,000 for the first time since December 2020, losing 9.5% in the past 24 hours. At time of publication, the largest cryptocurrency by market cap was changing hands around $18,984.1 after trading at a low of $18,739.50.

Ether (ETH), the second largest crypto, also continued its decline, falling 9.78% to about $992 at time of publication.

The crypto panic – which began a few weeks ago with the Terra ecosystem collapse and then spread to the Celsius platform – has moved on to hedge fund Three Arrow Capital, which reportedly had its collateral liquidated by crypto lender BlockFi.

Checking traditional markets, U.S. stocks saw more massive selling on Thursday, with the Nasdaq tumbling 4.1% and the S&P 500 3.25% before a slight recovery on Friday. For the week, the Nasdaq and S&P are each lower by about 6%.

Amitoj Singh contributed to this report.

Crypto Traders Turn Against Each Other in a Collapsing Market




Olga Kharif
Fri, June 17, 2022, 5:

With crypto prices tumbling precipitously, traders have begun increasingly turning against one another to eke out ever-elusive profits.

Many shark traders scour blockchains -- digital ledgers for recording transactions -- seeking information on other traders, particularly those with highly leveraged positions, an anonymous user known as Omakase, a contributor to the Sushi decentralized exchange, said in an interview.

The sharks then attack the positions by trying to push them into liquidation, and earning liquidation bonuses that are common in decentralized finance (DeFi), where people trade, lend and borrow from each other without intermediaries like banks.

Related strategies may have contributed to the collapse of the TerraUSD stablecoin, with shark traders making money off price arbitrage between the Curve decentralized exchange and centralized exchanges, according to Nansen, a blockchain analytics firm.

Recent troubles at crypto lender Celsius Network were exacerbated by arbitragers as well. The price of stETh token that Celsius has a large position in started trading at a large discount from Ether, to which it’s tied.

“As stETH goes down, arbitragers buy stETH and short ETH against it, sending ETH lower, which again lowers collateral values across DeFi,” effectively worsening Celsius’s position, according to a recent Arca note.

As Omakase put it, “In a downtrend environment, where yields are harder to access, what we are going to see is some actors utilize some more aggressive strategies, and that may not be necessarily good for the community.”

“The environment has become more player vs player,” Omakase added.

With crypto prices under pressure, taking on leverage has presented an even greater peril. Last year, Sushi launched a margin-trading and lending platform. Most crypto exchanges offer margin trading, and in the past it has been as high as 100X, meaning that people were able to borrow 100 times what they put down as collateral.

Most DeFi apps require traders to overcollateralize, however -- effectively taking out less in loans than they put in.

Driving Down the Price

A trader may find out that others could get liquidated when a coin’s price drops to, say, $100. The trader could then build up a sufficient position in the coin, then sell in order to pull the price below $100, while also collecting the reward for liquidating the trader that most DeFi apps offer.

“Most protocols offer a 10-15% liquidation fee,” Omakase said. “Triggering enough liquidations would cause a liquidation cascade where a motivated actor could simply hold a short position in order to profit for the subsequent secondary decrease.”

Other traders are simply profiting off liquidations they don’t trigger. Nathan Worsley runs a slew of bots -- software programs -- that search for traders who are about to get liquidated and gets paid a commission for liquidating them.

“Recently the amount of liquidations has been huge,” Worsley said in emails. “However, liquidations is not a continuous strategy, you sometimes go for a week or more without any significant liquidations. However, when liquidations happen there are usually a lot at once. You basically have to work a long time while making $0 profit, in order to be ready for the big day or two when you might be able to make a million dollars at once.”

His bots continuously scour blockchains, keeping a list of all the borrowers using a particular app and scrutinizing the health of their accounts. Once positions are ready for liquidation, “it’s usually a battle to be the quickest and perform the liquidation,” Worsley explained.

“I would push back on classifying this as an ‘attack,’” he added. “The reason is because without liquidations, you can’t have a lending market. So even though no one enjoys being liquidated, it’s essential that people do get liquidated in order to make the market and protect the protocol from insolvency.”

Liquidations can be triggered after traders borrow from apps like Aave or Compound, and put up collateral -- say, in Ether -- that’s typically greater than what they borrow, perhaps 120% of the borrowed funds. If Ether’s price drops, that collateral may now be worth only 110% of what the trader borrowed.

‘Protect the Protocol’

“My job as the liquidator is to protect the protocol by closing your position,” Worsley said. “The protocol gives me a reward for being a liquidator to encourage this activity, because blockchains cannot move by themselves. You have borrowed $1,000 of Bitcoin, so I repay the $1,000 of Bitcoin you owe the protocol. In return, the protocol gives me $1000 of your Ethereum collateral, plus a $100 ‘liquidation bonus’ from your excess collateral. I have made a profit, you have been liquidated and your position is closed, and the protocol itself has been protected from bad debt.”

With liquidation targets becoming more and more tempting in a tumultuous market, Omakase offers this advice: “Generally everyone should stay safe, everyone should avoid the use of leverage.”

Three Arrows Capital Confirms Heavy Losses From LUNA's Collapse, Exploring Potential Options: Report

Shaurya Malwa 

Fri, June 17, 2022

Beleaguered cryptocurrency fund Three Arrows Capital (3AC) confirmed Friday it had suffered heavy losses in the recent market downturn and said it had hired legal and financial advisors to figure a way out, according to a WSJ report.

• “We are committed to working things out and finding an equitable solution for all our constituents,” 3AC co-founder Kyle Davies told the WSJ. The fund had over $3 billion worth of cryptocurrencies under management as of April.

• 3AC is exploring options including asset sales and a rescue by another firm and hopes to reach a settlement with creditors, Davies said. 3AC owes at least $6 million to crypto exchange BitMEX, as per a separate report by The Block today.

• Davies said 3AC invested over $200 million in LUNA tokens as part of a $1 billion raise by the Luna Foundation Guard in February, an amount that is now essentially worthless since the Terra ecosystem imploded in mid-May. “The Terra-Luna situation caught us very much off guard,” Davies told the WSJ.

• LUNA lost nearly all of its value over the course of a week, while ecosystem algorithmic stablecoin terraUSD (UST) fell to a few pennies after losing its intended peg with the U.S. dollar.

• 3AC was additionally known as one of the largest holders of Grayscale Bitcoin Trust (GBTC), an institutional bitcoin product, as well as staked ether (stETH) tokens, both of which have seen steep declines recently (Grayscale and CoinDesk are independent subsidiaries of the Digital Currency Group).

• Davies added that 3AC was working on quantifying its losses and valuing its illiquid assets, which include many venture-capital investments in crypto startups.

• Meanwhile, Nichol Yeo, a partner of law firm Solitaire LLP, which is advising 3AC, told the WSJ that it was keeping Singapore’s financial regulator, the Monetary Authority of Singapore, apprised of 3AC's recent developments.

Babel Finance suspends withdrawals as crypto markets slump


Fri, June 17, 2022

FILE PHOTO: Illustration shows representation of cryptocurrency bitcoin

(Reuters) - Hong Kong-based Babel Finance temporarily suspended the withdrawals and redemption of crypto assets on Friday, as the crypto lender scrambles to pay its clients after the recent slump in the digital currency market.

Cryptocurrency valuations have plunged in recent weeks as investors dump risky assets in a rising rate environment, with bitcoin, which reached a record high of $69,000 in November, having lost more than half its value this year.

"Recently, the crypto market has seen major fluctuations, and some institutions in the industry have experienced conductive risk events. Due to the current situation, Babel Finance is facing unusual liquidity pressures," the company said.

Crypto lenders gather crypto deposits from retail customers and re-invest them, proclaiming double-digit returns and attracting tens of billions of dollars in assets. However, the recent meltdown has lenders unable to redeem their clients' assets.


Babel, which has 500 clients and limits itself to bitcoin, ethereum and stablecoins, raised $80 million in a funding round last month, valuing it at $2 billion. It had ended last year with $3 billion of loan balances on its balance sheet.

Earlier this week, U.S.-based retail crypto lending platform Celsius Network froze withdrawals and transfers between accounts "to stabilize liquidity" as the collapse of cryptocurrency TerraUSD in May triggered a rise in redemptions.

(Reporting by Sameer Manekar in Bengaluru; Editing by Amy Caren Daniel)

Bitcoin’s nosedive through the $20,000 mark is a Minsky Moment for crypto: ‘Psychologically for a lot of people, this is galling’

Mark DeCambre - 
Fri, June 17, 2022


Is bitcoin facing a breaking point? That’s what some investors, acolytes and otherwise, might be contemplating, as the cryptocurrency’s descent accelerates over the weekend. The world’s No. 1 digital asset was last trading at $18,654, down more than 70% from its peak of around $65,000, with the broader crypto market feeling to some as if it were in free fall.

“Psychologically for a lot of people this is galling,” said Charles Hayter, chief executive officer of CryptoCompare, a company that provides data and analytics about the crypto market.

Hayter, speaking to MarketWatch in a weekend interview, allowed that the risks inherent in bitcoin are part of its appeal.

Yves Lamoureux, the bitcoin-bullish president of Montreal-based macroeconomic research firm Lamoureux & Co., said that debt swirling around in the crypto market has amplified recent swings lower, with a number of highly indebted companies facing margin calls and this arcane business’s version of Wall Street bank runs. “If my read is correct, this is massive liquidation of huge leverage in the system,” said Lamoureux.

“It’s too easy as usual because bitcoin has this way of over [extending],” he said.

Indeed, Crypto lender Celsius Network LLC has reportedly hired restructuring attorneys from law firm Akin Gump Strauss Hauer & Feld LLP to advise it after the company told users that it was pausing all withdrawals, swaps and transfers among accounts, “due to extreme market conditions.”

Don’t miss: Celsius abruptly cancels AMA session as company navigates ‘very difficult challenges’

Also see: Crypto suffering a ‘Long Term Capital Management moment’: Michael Novogratz

On top of that, a major player in decentralized finance markets, or DeFi, a corner of the crypto world where traders often seek to earn money on leveraged crypto, has reportedly faced its own challenges.

“We are seeing rapid Minsky cycles in this space,” Hayter said.

Economist Hyman Minsky, who died in 1996, espoused a view that a period of distortions in the financial system eventually ends very badly.

Signs of trouble in crypto markets emerged in May with the collapse of the Terra, an algorithmic stablecoin blockchain pegged to fiat currencies like the dollar, which are intended not to hold their value against the peg.

See: This 24-year-old quit his job at hedge-fund powerhouse Citadel to build anew on the Terra blockchain — which collapsed two months later

“Bitcoin has already broken down [and is] now seeing significant downside follow-through,” Katie Stockton, a market analyst at Fairlead Strategies, told MarketWatch ahead of the release of a Saturday report to clients on bitcoin’s technical levels.

She said bitcoin’s collapse isn’t 100% confirmed but called sentiment badly deteriorated. If negative momentum continues, she said, she sees the next support at $13,900, based on her analysis.

Hayter said the current situation should be seen as par for the course for bitcoin and its ilk, “with perhaps,” he speculated, “the next iteration allowing regulation to strengthen the natural weak points.”

As is typical of crypto diehards, optimism reigns supreme: “I think bitcoin is fine,” said Lamoureux. “It’s moving from weak hands to strong hands.”

While bitcoin is down 59% in 2022, the equity benchmark S&P 500 is off almost 23%. The blue-chip Dow is down 17.8%. Gold has edged upward by 0.61% and the U.S. dollar index by more than 9%.

Bitcoin Tumbles Below $19,000 

for the First Time Since 2020

The most popular cryptocurrency has been in free fall

for several weeks now.

• LUC OLINGA 
Fri, June 18, 2022

It's a real debacle. 

Bitcoin fell below $20,000 and $19,000 for the first time since 2020, marking a week in which panic seems to be dominating the cryptocurrency market. 

The price of Bitcoin was at $18,766.13 at last check, according to data firm CoinGecko. The most popular digital currency was down more than 9% in the last 24 hours and 35.7% in the last seven days.

The price of Bitcoin was last seen at these levels around December 12, 2020. But since then it had been a meteoric rise until a crash began starting this year.

Ether, the second cryptocurrency by market value, also fell below the symbolic threshold of $1,000. The native token of the Ethereum platform was worth $970.50, down 10.1% in the past 24 hours and down 41.6% in the past seven days.

Bitcoin has lost 72.7% of its value since hitting an all-time high of $69,044.77 on Nov. 10. Ether for its part lost almost 80% of its value compared to its record of $4,878.26 crossed the same day.

So it's no surprise that the crypto market's valuation has lost nearly $2.3 trillion to $866 billion since hitting a high of $3 trillion in November.

The reasons for the crash are the same: fears of recession are pushing investors to liquidate risky assets. Cryptocurrencies and tech groups are considered as such. 

'Terrible' News Cycle for Crypto

The crypto market is also shaken by various scandals.

The first is the sudden collapse of sister tokens UST and Luna, despite their founders promising that their technology was solid and viable. 

The second scandal is the decision, on June 12, by crypto lender Celsius Network to freeze withdrawals and other transactions from its platform. Rumors have since been circulating about a potential insolvency from Celsius, which has still not dispelled them.

Then, on June 17, crypto financial services company Babel Finance said it was temporarily suspending withdrawals and redemptions in the latest blow to the cryptocurrency sector.

"Due to the current situation, Babel Finance is facing unusual liquidity pressures," the firm said in a statement. "We are in close communication with all related parties on the actions we are taking in order to best protect our customers."

During this period, the statement continued, "redemptions and withdrawals from Babel Finance products will be temporarily suspended, and resumption of normal service be notified separately."

Babel Finance describes itself as "one of the largest service providers to institutions in the crypto financial markets."

"The news flow has been terrible for crypto," said Edward Moya, senior market analyst for the Americas with Oanda."The Texas Securities Board is investigating the Celsius network‘s decision to suspend withdrawals and everyone is expecting restrictive guidelines to quickly make life difficult for crypto-lending firms."

Moya said that Bitcoin declined "as risk appetite left Wall Street as investors became worried of a much quicker deterioration for the US economy."

"Surging recession fears are crippling appetite for risky assets and that has crypto traders remaining cautious about buying bitcoin at these lows," he said.

Crypto Suffers Another Blow: Babel Finance Freezes Withdrawals

The crypto firm suspends withdrawals and redemptions in latest shock to the crypto sector, leaving investors to ask 'who's next?'

ROB LENIHAN
JUN 17, 2022 

Crypto financial services company Babel Finance said it was temporarily suspending withdrawals and redemptions in the latest blow to the cryptocurrency sector.

The Hong Kong-based company said in a June 17 statement posted on its website that "recently, the crypto market has seen major fluctuations, and some institutions in the industry have experienced conductive risk events."

"Due to the current situation, Babel Finance is facing unusual liquidity pressures," the statement read. "We are in close communication with all related parties on the actions we are taking in order to best protect our customers."

During this period, the statement continued, "redemptions and withdrawals from Babel Finance products will be temporarily suspended, and resumption of normal service be notified separately."

The company's website describes its vision as "building open financial infrastructure for the future."

On May 25, Babel Finance closed an $80 million Series B fundraising round at $2 billion valuation.

Babel Finance describes itself as "one of the largest service providers to institutions in the crypto financial markets."

The company said it limits its business to Bitcoin, Ether -- the two largest cryptocurrencies by market value -- and stablecoins, and serves a select clientele of about 500 customers.

The news follows Monday's announcement from Binance, the world's largest cryptocurrency exchange by volume, that it was temporarily pausing Bitcoin withdrawals

Meanwhile, crypto lender Celsius Network announced that it would suspend indefinitely various transactions, including withdrawals of funds

Another Crypto Winter?

And Coinbase Global (COIN) - Get Coinbase Global Inc Report shares have been sliding after analysts at JPMorgan slashed their price target on the digital currency trading platform amid the trillion meltdown in global cryptocurrency markets.

The platform will cut around 18% of its workforce, a level that would eliminate around 1,100 jobs and generate '"substantial" reorganization charges.

"We appear to be entering a recession," which "could lead to another +crypto winter+, and could last for an extended period," Coinbase said in a blog post. "While we tried our best to get this just right, in this case it is now clear to me that we over-hired."

JPMorgan analyst Kenneth Worthington lowered his rating on Coinbase to neutral from overweight, while cutting his price target by more than $100 to $68 per share.

And last month, the crypto market was rocked by the collapse of the stablecoin UST or TerraUSD, and the Luna token.

Bitcoin has lost 30.4% of its value in the last week alone, according to CoinGecko, and was recently $20,960.76.

"The news flow has been terrible for crypto," said Edward Moya, senior market analyst for the Americas with Oanda."The Texas Securities Board is investigating the Celsius network‘s decision to suspend withdrawals and everyone is expecting restrictive guidelines to quickly make life difficult for crypto-lending firms."

Moya said that Bitcoin declined "as risk appetite left Wall Street as investors became worried of a much quicker deterioration for the US economy."

"Surging recession fears are crippling appetite for risky assets and that has crypto traders remaining cautious about buying bitcoin at these lows," he said

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MONOPOLY CAPITALI$M

KKR, GIP Jointly Bid for $21 Billion Deutsche Telekom Unit


Dinesh Nair, Gillian Tan and Rodrigo Orihuela
Fri, June 17, 2022


(Bloomberg) -- KKR & Co., Global Infrastructure Partners and Stonepeak Partners have jointly made a binding offer for a controlling stake in Deutsche Telekom AG’s 20 billion-euro ($21 billion) towers unit, people familiar with the matter said.

They’re competing with a consortium of Canadian investment firm Brookfield Asset Management Inc. and Spain’s Cellnex Telecom SA, which made a confirmatory bid for part of the Deutsche Telekom business, the people said, asking not to be identified because the information is private.

Deliberations are ongoing and other bidders may still emerge, the people said. Vodafone Group Plc’s listed infrastructure unit, Vantage Towers AG, is keen on Deutsche Telekom’s towers assets and could make a bid on its own or with a partner, one of the people said. Investment firm DigitalBridge Group Inc. has also been evaluating the business, Bloomberg News reported in May.

Representatives for Brookfield, Cellnex, Deutsche Telekom, Stonepeak and Vantage declined to comment. Spokespeople for KKR and GIP didn’t immediately respond to requests for comment.

Shares in Deutsche Telekom rose as much as 2% on Friday. The stock was up 1.6% at the close in Frankfurt, giving the company a market value of 90.2 billion euros.

Europe’s struggling phone carriers once saw ownership of these network infrastructure assets as a vital part of their business models. Now, under pressure to raise cash and cut the bill for new network investments, they’ve begun to spin off their wireless masts into separate units or sell them outright.

Private equity firms are drawn to telecoms infrastructure because of its ability to generate steady, long-term returns. KKR raised $17 billion for its latest global infrastructure fund earlier this year, while GIP is targeting $25 billion for what would be the world’s biggest pool of capital dedicated to infrastructure investments.

Cellnex, Europe’s biggest mast operator, already jointly owns towers with Deutsche Telekom in Switzerland and the Netherlands. Germany is the only major European market where Cellnex hasn’t been able to build a presence.

HOUSING FOR PEOPLE NOT PROFIT

US Homebuilder Sentiment Falls to Two-Year Low on Softer Demand

Reade Pickert, Bloomberg News

(Bloomberg) -- US homebuilder sentiment slid to a two-year low in June as rising inflation and higher mortgage rates weighed on housing demand. 

The National Association of Home Builders/Wells Fargo gauge decreased two points in June to 67, the lowest level since June 2020, figures showed Wednesday. That marked the index’s sixth straight decline. 

Homebuilders are facing a widespread slowdown in the housing market. A rapid rise in mortgage rates has crimped affordability and driven a slowdown in home sales in recent months. Meantime, lead times for materials remain long, costs are high and labor is still hard to find. 

“The housing market faces both demand-side and supply-side challenges,” Robert Dietz, chief economist at the NAHB, said in a statement. “Residential construction material costs are up 19% year-over-year with cost increases for a variety of building inputs.”

“On the demand-side of the market, the increase for mortgage rates for the first half of 2022 has priced out a significant number of prospective home buyers,” he said.

The group’s gauge of prospective buyer traffic fell five points to 48, the lowest since June 2020. The measure of present sales also declined to a two-year low, and sales expectations for the next six months dropped to the lowest since May 2020. 

By region, builder sentiment declined in three of four regions. Sentiment improved in the Midwest. 

A separate report earlier this month showed 69% of construction firms reported few or no qualified applicants in May, according to a survey of small businesses by the National Federation of Independent Business.