BITCOIN PLUNGE

Investment Analysis Clubs Macro Economic Trends and Risks
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CRYPTO FIRMS HALT WITHDRAWALS

Crypto firms Celsius, Binance halt withdrawals as bitcoin plummets

Cryptocurrency companies on Monday blocked users from withdrawing funds as the value of bitcoin and other prominent digital assets plunged.

Crypto lending company Celsius Network announced late on Sunday night that it would freeze all withdrawals and transfers due to “extreme market conditions.”

The move sparked an enormous selloff, with the price of Bitcoin falling 12 percent to its lowest level since December 2020.

Binance, the world’s largest crypto exchange by trading volume, said Monday morning that it was freezing bitcoin withdrawals due to “due to a stuck transaction causing a backlog.”

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https://thehill.com/policy/finance/3521094-crypto-firms-cels…

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Dave,

Thanks for posting that. It is the equivalent of a bank run of old.

Binance has always been a shaky company. They are not allowed in the US except as Binance USA.

I have $160 Eth to do some business with such as the initiation fee for joining Opensea which is something north of $80 in Eth.

In Eth I may mark my animations way up. People may not know where to offload the Eth as it falls. I am waiting on things and have some work to do.

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This sounds like a classic run on a bank.

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This sounds like a classic run on a bank.

OK, help me here. In a classic run on a bank, people are lined up to get “their” money, but the bank doesn’t have “their” money down in the basement somewhere because it’s been loaned out to other people to buy houses or refurbish a factory or whatever.

Is crypto being loaned to people to other things with? And if so, what? I thought the thing about crypto was that there was a set amount, doo dah, doo dah, and what you had was confirmed by this infinitely large ledger kept on servers all over the world so there could never be more than actually existed (unlike fiat currency which can be infinitely loaned out and thereby multiplied).

Which class did I miss where this was discussed? Do I need to watch an updated version of “it’s a Crypto Life” with Tom Hanks and Bozo the Clown? What?

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Is crypto being loaned to people to other things with? And if so, what? I thought the thing about crypto was that there was a set amount, doo dah, doo dah, and what you had was confirmed by this infinitely large ledger kept on servers all over the world so there could never be more than actually existed (unlike fiat currency which can be infinitely loaned out and thereby multiplied).

Which class did I miss where this was discussed?

I am by no means an expert on this, but I think what you’re missing is the difference between the crypto blockchains and some of the platforms that offer financial services to people that are off the blockchain.

The total amount of Bitcoin is finite, and who has what is confirmed on the blockchain. They’re analogous to a national mint, producing a finite number of uncounterfeitable (by hypothesis) dollars.

Celsius (the marketplace that suspended withdrawals) isn’t part of the blockchain. They’re a third party that people ‘deposit’ their BTC with. I’m using BTC, but they apparently operate in a whole bunch of currencies. They then do a whole bunch of lending of, and on, those BTC - apparently paying up to 17% APY. They’re analogous to a bank.

That’s why you can have the Bitcoin equivalent of a bank run - not on the blockchain itself, but on a third-party platform that is ‘off-chain.’ Or rather, off the primary chains for each currency - my understanding is that a lot of these platforms actually operate on their own blockchains with their own native tokens.

That’s kind of how people are trying to get around some of the scalability/expense issues with the big decentralized ledgers like bitcoin and ethereum, that require a ton of computing work to process transactions. They set up side chains and “level 2” platforms that do a lot of transactions ‘off-chain.’ But the security that the massive decentralization of the big blockchains provides doesn’t actually transfer to the side chains, which is why they can collapse.

TL;DR - the cryptocurrency itself is decentralized and (probably) trustworthy, but too expensive to use; the companies offering you the services for wallets and platforms aren’t all that expensive, but they aren’t as secure as the crypto blockchains and can go belly-up.

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Would you say a bubble bursting or a Ponzi scheme collapsing instead?

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Why not both simultaneously?

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Would you say a bubble bursting or a Ponzi scheme collapsing instead?

For Celsius - the lending/trading platform that stopped honoring requests for withdrawals - there have been critics who accused it of being a Ponzi scheme:

Celsius offers exceedingly high returns to those who deposit crypto with it. Before the halt, that rate was 18.6 percent, a multiple many times that of traditional banks and has in the past climbed as high as 30 percent. That has led critics to say it does not have the assets on hand to back up the deposits should enough investors demand their money back.

In the past year, state governments have asked many of the same questions. Last September, New Jersey’s Bureau of Securities sent the firm a cease-and-desist letter, while Alabama and Texas have also demanded it answer questions about its liquidity. (The firm has offices in New Jersey, as well as Europe and the Middle East.) The New York attorney general also has requested more information on Celsius’s business.

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“Sadly it’s a regulatory failure on behalf of the SEC,” [Stephen Diehl] said in a message to The Washington Post. “There were red flags on this company for years and they did nothing. These protocols that promise 20%+ yields from no economic activity are basically just a new form of Ponzi scheme. It’s just a shame so many retail investors are going to lose everything when this was very preventable.”

https://www.washingtonpost.com/business/2022/06/13/celsius-c…

But the underlying crypto currencies like BTC and ETH that were traded on the platform might simply be a bubble, which is popping as the frothy and fraudulent get wiped out in another ‘crypto winter.’

Albaby

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Would you say a bubble bursting or a Ponzi scheme collapsing instead?

Luna was a Ponzi scheme that collapsed. Terra is a Ponzi scheme that has yet to collapse. Bitcoin is a speculative bubble that is in the process of collapsing. But Bitcoin and other crypto can also be pump and dump schemes. MicroStrategy’s Michael Saylor got the pump right–urging people to mortgage their houses and buy Bitcoin–but missed the dump.

https://youtu.be/OXfsbKgGiko?t=69

Now it looks like he might have a margin call:

https://www.marketwatch.com/story/microstrategy-shares-slump…

And then you have the occasional rug pull, like Mt Gox.

Lots and lots of ways to lose money in the crypto space.

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What is missing?

Eth is down in tandem. Eth’s Difficulty Bomb has been delayed is the first wave of news. Eth was at one point down more than BTC. Binance is a shaky trading platform that is the largest. Binance halted trading in BTC. The second wave of news.

Meanwhile the buying pressure was around 4 to 1 buying in BTC and 3 to 1 buying in Eth today. Smart money is buying. Ya know smart money aims to buy in low.

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I need to go further in my explanation as I read some of your posts.

BTC and Ethereum are bell weathers in the crypto world. BTC is the old bell weather and Eth the newer one. Eventually Eth will be larger than BTC. The reason more of it will be mined over time. Of all the cryptos these two are the main show.

Eth’s difficulty bomb is an important upgrade to proof of stake. Bugs were found in going to proof of stake. Think Boeing trying to fix the 737 Max over the course of about two years and when bad news hit the stock plummeted. Eventually the software was patched or corrected however to make the Max safe again. All nervous bets that Boeing could not fix the software were proven wrong. It takes time.

In sympathy BTC and Eth have been falling. This week the difficulty bomb was supposed to work. Instead the cross over has some bugs in the code. The reaction was swift. It is not the end of the world that “KNOWN” bugs will need to be debugged. Now is it?

As an answer if you know the bugs you are getting the job done in full sooner rather than later.