Weekly Round-up
If you missed last week’s Mafia Monday’s and haven’t been on Twitter lately, we highly recommend skimming the Celsius section.
TLDR — It’s still over, but not yet.
Some quick housekeeping before we dive in!
- DeFi Mafia just launched on TikTok (We’re not cringe, we promise)
- Our Charting Series ‘Markets with the Mob’ just launched our first episode this will be live each Monday with our outlook on charts for the week from a technical perspective
- We’ll be kicking off our Research reports later this week with a piece comparing 3AC’s blow up to Long Term Capital Management’s in ‘98.
Okay, with that out of the way, we have a LOT to cover this week so let’s get into it.
What you missed last week
- The word of the week was ‘Contagion’ as dominoes in crypto markets have started to fall left and right, more on this below.
- Outspoken DeFi investor, Tetranode, deleted his Twitter this week right before news leaked that the SEC is subpoenaing Rari Capital, whom he was a leading investor in and helped fund liquidity for their Fuse pools
More Bad News in Algo Stable Land
Tron’s stablecoin USDD that we covered last week also de-pegged, falling to ~.92 cents and has risen back to ~.95. Last week’s featured threadooor @resdegen has continued to be a great resource for algo stablecoin analysis — his most recent thread on USDD can be found here.
Celsius 3AC Insolvent?
This week, we’re doing the same except this time it’s one of crypto’s largest and most renowned venture/hedge funds, Three Arrows Capital (3AC).
After rumors swirled all last weekend, news slowly began coming out and suspect activity like Su’s inactivity on Twitter and deleting Instagram.
By Tuesday word was out, and 3AC’s fate appeared to be sealed.
So what happened?
The 3AC TLDR:
- 3AC hit it big in the 2020-21 bull cycle by making high conviction bets on protocols like Avalanche, Terra Luna, Axie Infinity, Near, Derabit, and many others.
- They were estimated to have ~$10bn AUM (Assets Under Management)
- As their seemingly unending success continued, one of the two co-founders, Su Zhu, developed a theory he coined The Supercycle.
- His theory was simple. As crypto continued to grow and gain mass adoption, price downtrends would be shorter and bear markets would cease to exist.
- And to his own admission, this theory was clearly wrong.
- Because 3AC truly believed in the Supercycle, they used irresponsible amounts of leverage, much of which used illiquid locked tokens from their venture investments as collateral.
- After taking significant losses on LUNA and BTC longs, they faced liquidations and margin calls on their positions.
- But it gets worse. Being that they were one of the most respected names in the space, they would often offer to manage treasuries of protocols they invested in, firm partners, and high net worth individuals, offering 8-10% consistent yield.
- Many of those who agreed to giving 3AC their money have now come out and said that it’s gone and 3AC founders Su Zhu and Kyle Davies are nowhere to be found.
- All of this caused mass ripple effects across crypto markets, leading to an industry wide deleveraging and firms racing to decrease their risk exposure sending prices down with them.
BlockFi Next?
Twitter Threadooor @oteroooo has written multiple threads over the past weeks with inside scoops of what’s happening at various firms, much of which has come true.
While currently unconfirmed, they’ve now come with new information in a thread detailing BlockFi’s alleged issues.
Solend Controversy
This all started when @0xrooter, founder of Solend, tweeted this on June 15th asking a large whale on his platform to add margin to his near $170M deposit:
The whale had been unresponsive and the wallet had been inactive for a concerning amount of time. A position this large getting liquidated via on-chain DEXs could be catastrophic for the entire Solana ecosystem as they do not have the liquidity to absorb a sell of this volume.
So, in response the Solend team wrote a DAO proposal to seize the funds from the smart contract prior to liquidation and sell them OTC as to not have direct market impact.
Obviously this goes against the entire ethos of DeFi being that finance should be immutable and permissionless. Many on Twitter, including Cobie, were extremely against the proposal and Solend’s brand has since taken a major hit.
This situation has yet to be resolved, but will something to watch closely this week.
BREAKING: DAO Proposal has been OVERTURNED
Peter Schiff’s Smug is Breaking Out
How can you blame him really. When you hear Alex Mashinsky’s (Celsius CEO) response to how they generate yield in the clip below, it’s hard not to think crypto could be a scam. Mashinsky could have given a simple answer of how they generate yield with:
‘borrowing and lending’ or ‘mining rewards’ or ‘crypto capital markets’
Any of these would’ve sufficed, yet he ended up giving the most generic, Bitconnect-esque answer on national television.
This clip of Peter Schiff has been circulating on Twitter (He did say Bitcoin, not crypto 👀)
Think what you will of Peter Schiff as a person, he’s a bright mind with a stronger understanding of economics than most. Even Silico and Jim Talbot give him credit. The dude knows his stuff.
When you see clips of Peter Schiff circulating on Twitter roasting Mashinsky in the middle of peak fear, even crypto native people can’t help but cringe up at how bad that makes the industry look.
From the Mafia
Listen on Spotify or Apple Podcasts, or watch on YouTube:
Markets with the Mob: We kick-off our weekly TA series with Adrian. We’ll be hosting guest traders occasionally, and these are the topics we plan to cover giving you all insights and also educating on our analysis process.
- Bitcoin Analysis
- Macro Confluences (DXY, NASDAQ, TOTALS, Stablecoin Caps)
- Using Indicators for Confluence
- Ethereum Price Predictions
- Alt Coin Charting
DeFi Mafia TikTok: Our first TikTok test run is live, we’ll be featuring clips from our podcasts and videos, as well as TikTok exclusive content down the road.
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Markets overview:
We’ve since been consolidating in the 18K – 21K area, and a local bottom may be on the table in the short term.
Covered more in-depth in our TA Series (Timestamp – 24:40) are three macro BTC scenarios we’re keeping a close eye on:
- 17K Bottom is in
- 14K Scenario
- 9K Scenario
If we’re able to hold the current order block we’re in and see signs of a macro reversal the high probability target for Bitcoin would be:
- ~118-130K range in the golden pocket
Check out the link above to see the full predictions in-depth.
FOMC
The meeting Wednesday came back slightly more hawkish even though the market had been pricing in 75bps. More surprisingly was the rhetoric from Powell about how their efforts to reduce inflation have effectively failed up to this point.
TLDR points below:
- Inflation has not gone down like the Fed had expected
- Fed will continue rate hikes until inflation is under control
- Unemployment may increase as the Fed is forced to take strong measures
- Hopes of a ‘soft landing’ instead of a recession may be off the table
Top News Stories:
Feature of the Week: Stanley Druckenmiller
He recently gave an interview with John Collison, co-founder of Stripe, about his current macro views, trading thesis, and more.
The whole interview is worth a listen, but we gave our TL;DW notes below if you prefer a quick summary.
On Inflation and Fed Action
- When inflation goes above 5% it’s incredibly difficult to tame. In the past the only way to get it down was to Jack up fed rate to the level of inflation which he doesn’t think will happen
- Should have been more bankruptcies over the last decade but we’re saved by free money economy
- Markets are forward looking, so they tend to lead the economy/economic indicators. Expects within the next 6 to 12 months the real world economy will reflect what markets are currently pricing in
On Crypto
- Believes crypto is beginning to have effects on broader markets
- Blockchain technology will be a major part of the global economy and especially finance within the next 5 years
- Bitcoin vs Gold: In inflationary bull markets he’d rather own Bitcoin, in inflationary bear markets he’d rather own Gold
Trading Philosophy
- Sizing is 70-80% of the equation. It matters much less about how often you are right or wrong, but how much you make when you’re right, and how little you lose when you’re wrong
- When you’re hot, keep pushing until you lose your streak
- Ape first, research second. You don’t have time to do full thorough analysis on every trade, if you like an idea enter it and then after further research decide to cut it or add size
On Macro
- In his 45 years of trading he’s never seen an environment he can compare to this, we are in uncharted waters
- He fears there is a chance of seeing a 1930’s like post-depression decade as the biggest asset bubble in history deflates
- However, he admits he’s always had a bearish bias to take his pessimism with a grain of salt
Featured Threadooor: @otteroooo
Definitely someone you want to add to your following list and have notifications on for.
Wrap-up
This week we covered:
- 3AC Insolvency TLDR
- Block-Fi
- Peter Schiff dunking on Bitcoin
- Solend DAO Proposal
- Market Overview
- FOMC
Things to look out for this week:
- 3AC updates + developments from protocols that they managed treasuries for
- Developments on SEC subpoenas and regulation
- Block-Fi Insolvency
As always, if you enjoyed the content make sure to check us out on our other channels, and we always appreciate any shares on Twitter!
See you next week.
