An analyst has released an intriguing post on bitcoin liquidation since May 10th. In total, 236,237 bitcoins worth almost $5.5 billion were thrown onto the market, according to the analysis. Was that it now?
The current crypto bear market has a property that, despite all the pain we are suffering, is highly attractive for a journalist: it shows some processes and mechanisms in a transparency that is unprecedented.
We know exactly where the crash started, the mechanisms by which the contagion spread, and how badly each party affected them. The blockchain analyst Arcane Research has now published a list of who liquidated how many bitcoins. The analyst comes up with a total of 236,237 bitcoins or almost 5.5 billion euros.
However, he also emphasizes that this is a lower limit. The analysis includes only the large, known cases. It "does not take into account natural capitulations or hedging activities usually associated with a bear market."
In itself, the study reveals nothing fundamentally new. Most of the parties and their involvement in the crash have long been known. Nevertheless, the concise and well-researched analysis is instructive.
1. Luna and UST
It all started with the Luna Foundation and their UST stablecoin. The UST stablecoin was initially backed by Terra tokens until the Luna Foundation decided to additionally back it with $3 billion worth of Bitcoins.
However, once this reserve was established, “it took only 5 days for parity to the dollar to be in shambles, and the reserve of 80,000 bitcoin was deployed in a desperate attempt to salvage the peg.”
This was May 9th. UST collapsed , and this was probably the initial trigger of a crash that spread to almost the entire market via contagion effects. The Luna Foundation liquidated 80,000 Bitcoin, sending the Bitcoin price plummeting.
2. Miner
However, the market was certainly gloomy even before the UST collapse. This is shown, for example, by the fact that miners began to increasingly sell bitcoins from May. Previously, they were very cautious and tended to hoard the mined coins. They called this the "HODL strategy."
That changed in May, probably for two reasons: First, the price continued to fall, so they had to sell to pay the electricity bill. Second, they had often previously funded themselves by taking out loans against bitcoin collateral. Now, however, the market for such loans was badly hit, perhaps no longer liquid.
Either way, the miners had to give up their previous hodl strategy . In May, they sold 4,456 bitcoins. That is more than four times as much as in April.
3. Tesla
Tesla also started selling bitcoins around this time. This was shown in a recently published annual report. According to him, Tesla cleared 75 percent of its Bitcoin holdings in the second quarter of this year. The group was able to improve its balance sheets and report extra profits.
In total, this should have been around 29,060 bitcoins. Arcane Research estimates that Tesla sold these with slight losses for a good $30,000 each. But such information is uncertain because it is not clear when Tesla launched the coins - whether in April or as late as June.
4. Three Arrows Capital
On June 12, the drama neared its center. First, Celsius , a crypto lending platform, halted payouts. It quickly became apparent that the underlying cause was Three Arrows Capital, 3AC for short , a hedge fund that had speculated with debt capital, including Terra tokens, and was now facing bankruptcy.
Documents released during the bankruptcy proceedings show that 3AC owed creditors 18,193 bitcoin and GBTCs worth 22,054 bitcoin. GBTC is “Grayscale” bitcoin, a kind of share in a bitcoin fund.
3AC's creditors liquidated what they had in hedge fund deposits and prepared for turmoil by reallocating funds. Celsius went bust anyway, paying out 21,962 WBTC that should have been frozen in preparation for bankruptcy.
WBTC stands for "Wrapped Bitcoin" and means Bitcoin tokens on the Ethereum blockchain. They are frozen on the Bitcoin blockchain by BitGo and released on Ethereum. In the course of the price falls, a further 21,009 WBTC were redeemed, which Arcane suspected were liquidated.
5. Purpose Bitcoin ETF
The Canadian Purpose ETF, which tracks Bitcoin, also had to sell. A whopping 24,510 bitcoins were triggered and dumped onto the market. It probably got too hot for a large number of private investors and institutional investors, and the price development triggered automated sell orders.
6. Miner II
The miners were increasingly struggling with this uncomfortable market situation. This shows the evolution of mining difficulty. It has fallen four times since its all-time high in mid-May and rose only once slightly: miners mined hash power as operations become increasingly unprofitable.
In June, therefore, the sale of bitcoins by the miners intensified. They sold around 14,600 bitcoins this month - around 15 times as many as in April.
Is that it?
As mentioned, all these liquidations are not the whole picture, but only a mosaic of the largest parts. There was certainly plenty of selling and further liquidation by traders and savers.
“Most of the 236,237 BTC mentioned were forcibly sold. It was probably worse than what this analysis covers when private investors lost and institutions capitulated.”
The enormous sums that have been forcibly liquidated show how closely intertwined the market is. A little bump here or there can quickly turn into an avalanche.
At the same time, the enormous sums also show how incredibly liquid the market is. It's not a given that you can extract more than $5.5 billion -- probably a lot more -- from what critics say is nothing more than a "castle in the clouds," built "out of hot air," and so on.
In addition, the wave of contagion seems to have come to an end. This is supported by the fact that there have been no further bankruptcies for several months and that some companies affected , such as Blockchain.com , easily absorb the impact. This gives cause for cautious optimism that although the bottom has not yet been passed, it has at least been reached.
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