Bitcoin has no lender as a last resort for those who take unnecessary risks.  Bitcoin's recent leverage cleanup is par for the course for a truly scarce asset.

Is Bitcoin a Warning Sign for Global Takedown?

The following is a direct quote from Marty’s Bent Issue. #1228: “Leverage Bitcoin without removing the world leverages.Sign up for the newsletter here.

The Bitcoin market is in the process of going through a major de-leverage event. The process began last month when the Luna-Terra ponzi exploded spectacularly and was forced to liquidate nearly 80,000 bitcoins. The process accelerated last week when Celsius proved that Three Arrows Capital and Babel Finance had overexpanded on exotic high-yield token projects that crashed hard and, in the case of Babel, lend to those who overexpanded them.

The failure of each asset brought a wave of bitcoin sell orders over the weekend that drove the price below $18,000. As of now, the bitcoin price has rallied, currently sitting above $20,000, but rumors are swirling that there are multiple companies struggling behind the scenes and that they will place larger sell orders as these organizations seek liquidity to meet their obligations. Let’s see if these rumors turn out to be true.

Whether they do or not, this bulk removal is healthy for several reasons. First, it reduces the amount of interconnected risk throughout the bitcoin market. Second, the epic explosions that lure people into a company’s trap by promising bitcoin returns by taking crazy risks across DeFi protocols, lending, and bitcoin mining – Celsius in particular is providing a new wave of early adopters. The hard lesson of trusting your valuable sales with centralized third parties who take unnecessary risks with your Bitcoin. This lesson has been taught many times over the years: Mt. Gox, Mintpal, QuadrigaCX, BitConnect, OneCoin. Celsius can now be added to this list. Finally, the rapid and violent leverage reduction shows that bitcoin is indeed a free market. If you take unnecessary risks and those risks go back up your ass, there is no last resort to lend money.

With the normalization of playing away from the risk curve that the fiat system brings with it, many people felt comfortable playing fiat games with their bitcoins. They come to find that Bitcoin is a ruthless mistress, and if you don’t treat it well by holding and securing your own keys, you will perish with the tide when the seas get turbulent. Over time, as more people learn this lesson, the market should self-correct and individuals should opt for products that allow them to control a switch or switches within a majority if they decide to interact with third parties. first place. Bitcoin is an excellent scarce asset that should increase its purchasing power over longer timeframes, so collecting pennies to potentially lose wealth will become more obviously stupid as time goes on.

The price drop is definitely a bit jarring, but this is nothing new. Simply for the course of a perfectly scarce asset going through the early monetization phase where we humans try to understand the dynamics of the network and how to interact with it.

Now this is where things get interesting. Bitcoin is undergoing a major purge at a time when it becomes all too clear that the fiat money system is definitely about to roll off steam by the combined mistakes made by policymakers over the decades. It really feels like “this is the big one”. Central bankers around the world seem increasingly worried, and more importantly, recent policy changes seem completely ineffective. The Federal Reserve’s rate hikes may be worsening inflation expectations as a rapidly rising federal funds rate leads to significant increases in the cost of capital, making it harder for energy companies to invest in the infrastructure needed to start suppressing supply. side issue causing prices to skyrocket.

As we said last week, the Fed’s failure to rein in inflation after making some of the most aggressive rate hikes in three decades could lead to a collapse in confidence that could unleash the hounds of hyperinflation. We warned last week that the Bank of Japan was losing control of its yield curve control efforts. As the calendar changes and the likelihood of worldwide price increases to slow down any time soon, the situation in Japan becomes even more dire as the 10-year government bond in Japan has failed to keep up with the 0.25% rate applied by the Bank of Japan. targeting. Japan’s debt-to-GDP ratio is so high that it is literally impossible for them to raise interest rates with Western economies. If they did, they would bankrupt the country in the process. So, instead of outright default, Japan seems to be choosing the path of hyperinflation as it will have to print unimaginable amounts of yen to try to control rates.

Via DB Via ZeroHedge

As we said last week, if the Bank of Japan loses control and hyperinflation erupts across the country, it’s game over for the rest of the world’s advanced economies, which pursue policies like the Fed, the European Central Bank, the European Central Bank and the like. Bank of Canada, Bank of England and others. A Japan-like boom is the finale for every single central bank embarking on QE4eva.

With that in mind, your Uncle Marty envisions a scenario that could potentially unfold throughout this summer and early fall, providing a “decoupling” path for bitcoin.

There’s no way to tell whether a significantly unleveraged and relatively cheap bitcoin will be the asset individuals and larger allocators turn to as the world sinks into shit, eventually bringing the “safe haven” narrative to life. It’s hard to deny that the conditions will be more ripe than ever for a breakup to actually happen. Keep an eye out for this as we approach October and November 2022.

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