Systemic Risk Accelerates

The CEO of MicroStrategy and Bitcoin evangelist Michael Saylor has already lost $2 billion on his bitcoin investments signaling that all is not smooth for the wider crypto industry.

Much like in the fiat money world, once extremely unlikely events start to occur, we usually see a cascade of odd unintended consequences that push the network or system to the brink.

Many are calling crypto lender Celsius’ freezing of withdrawals a “Lehman” type moment.

We have entered a phase of crypto systematic risk rearing its ugly head.

Investors are waiting for the complete capitulation which could materialize into another potential ugly event on top of the mini disasters of late.

This bodes poorly for crypto in the short-term.

A large wallet at the center of the fiasco at Solana lending protocol Solend started to move millions of dollars of cryptocurrencies.

The move potentially averts the risk of contagion in case of a liquidation that could have caused up to a billion of dollars in losses.

The anonymous wallet had deposited 95% of Solend’s pool of SOL tokens and represented 88% of USDC borrowing, yet came close to a margin call last week as the SOL price dropped more than 40% to as low as $27.

The protocol would have automatically liquidated up to 20% of the big account’s collateral if SOL hit $22.30, and potentially lead to damage in the broader Solana ecosystem.

A governance vote was floated by protocol developers to take control of the account and take adequate risk management steps.

One of the hidden risks about crypto and particularly the smaller and more artisanal altcoin is that they are dominated by a few big accounts.

Before these secondary coins exploded, big accounts would get in at paltry prices and these are the accounts that currently corner the market.

Many algorithms had $20,000 marked as the line in the sand and once breached, look out below.

I personally know a few traders that have inputted orders to sell limit orders as psychologically sensitive levels.

The Solano debacle spiraling out of control leading to an internal stakeholder vote is a shocking turn of events.

This wrecks any notion that this network is decentralized and is the exact opposite of what crypto advertises itself as a non-centralized system.

For the developers to “takeover” a big account because it could take down the coin’s network is even worse than what’s happening in the fiat world.

This is another massive thumbs-down event for crypto infrastructure and another kick in the sternum for dip buyers.

To be honest, there are no dip buyers in crypto and each day validates this thesis.

Trust in crypto, crypto momentum, crypto liquidity, and the supposed bullish crypto narrative as a store of value or inflation hedge are all trending towards generational lows with no end in sight.

The surge above $20,000 per Bitcoin is a dead cat bounce triggered by short coverers.

Investors are selling all the crypto they can before the next down leg takes us lower before the next area of system risk crops up.