Notes 11/22: Bitcoin Price, $1.2 Billion Everywhere, and Ticking Time Bombs

Bitcoin price fell to a new two-year low of $15,480 amid talk of a possible bankruptcy for lending firm Genesis. The New York company was said to be in talks with crypto exchange Binance and investment firm Apollo Global Management for a loan of $1 billion.

The firm had expanded operations and its loan volume surged during last year’s boom in crypto markets. This year’s bust and subsequent scandals have resulted in losses, however. Genesis’s loan origination volume fell, and it had to lay off staff. The firm also seems to have had exposure to all crypto’s bankruptcies this year.  

The effect of a Genesis bankruptcy on bitcoin price is not clear since we don’t know the firm’s detailed financials and its crypto holdings. As of this writing, bitcoin price is at $16,158, up by 1.35% from its price a day earlier.

The Future of Bitcoin Price

Its prospects do not look good. A cascade of bankruptcies and crises since June has bruised bitcoin’s standing among institutional investors and they are fleeing its ecosystem.

The global macro-outlook doesn’t look too promising for the cryptocurrency either. The world economy is still climbing its way out of the turmoil of high inflation, unstable energy prices, and war.

Domestic savings rates in the United States are declining at a rapid pace, meaning consumers have less disposable income – the fuel for crypto’s skyrocketing valuations during the pandemic – for investments. In September, the savings rate was 3.1%, the lowest level since the 2008 financial crisis. Analysts expect consumers to run out of savings rates by the middle or end of next year.  

Not that those savings would have found their way into cryptocurrencies. The asset class has taken a massive hit to its credibility this year. Industry insiders and analysts say the current spate of scandals might not be the end of the story. There is talk of another cataclysmic collapse before bitcoin reaches its bottom for this year.

The $1.2 Billion Mystery

$1.2 billion seems to be crypto’s favorite number. Celsius had a $1.2 billion deficit on its balance sheet with respect to its assets. FTX has $1.2 billion in cash. It also has a “related party receivable” for $1.2 billion. What is it about this number that crypto balance sheets are fixated on it?  

On a related note, FTX began bankruptcy proceedings in a Delaware court today. It is the largest bankruptcy of a crypto company. More importantly, given FTX’s size and reach within crypto, it will reveal connections between entities in the ecosystem. Holes in the crypto exchange’s balance sheet could spur further revelations and lead bitcoin to fresh lows.   

A Walking Time Bomb!

Crypto is a bomb-laden asset class. Many think crypto is a ticking time bomb. NFT artist Beeple tweeted about stablecoin giant Tether is a silent bomb within the crypto ecosystem.

In a new twist to this concept, Doctor Doom Nouriel Roubini says Binance cofounder Changpeng Zhao (CZ) and his exchange are a “walking time bomb.” According to him, Binance is an “even bigger scam” than FTX. “I think these people [crypto professionals] should be kicked out of here,” he told audiences at the Abu Dhabi Finance Week last week.

CZ is a resident of Dubai and has a license to operate his exchange in the country. “I think if anyone was going to be kicked out, it should be him (Roubini),” he retorted to Roubini’s comments.

CZ is also reported to be in talks with prominent investors there for an industry recovery funds to support “strong projects” in crypto that might be hard up on cash. Details about the fund’s workings are unclear, however.

For example, how will the fund decide which projects are “strong” and in need of recovery? Besides this, what is the incentive for investors to put their money into projects with tokens that might plummet to zero in less than a day?    

Meanwhile, it remains to be seen who detonates first – CZ or his exchange. Or, if the authorities heeded CZ’s comments and kicked Roubini out of the UAE for his comments.

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