As you may have noticed, the digital currency markets are in meltdown. Bitcoin SV developer and thought leader Joshua Henslee recently released a video explaining how he sees wider systemic risk and how this might be the moment when the house of cards finally comes down.
Unprecedented levels of leverage and risk
Henslee begins by stating that he’s been involved in the blockchain and digital currency markets for a long time, but he’s never seen anything like this. He calls the situation “unprecedented” and believes that the moment of reckoning many have been warning about for years may be upon us.
While coins have always moved in unison to some degree, this time, Henslee rightly points out that the entire system is intertwined and leveraged up in a way that it wasn’t during previous crashes. Major funds took on massive hits from the UST/LUNA implosion, and the series of events that have followed are part of a chain reaction.
For example, Three Arrows Capital, a Singapore-based hedge fund with massive exposure to digital currencies, is rumored to be insolvent. The fund’s flamboyant co-founder Su Zhu boasted that 100k ETH was “dust” not long ago, but he’s now said to be seeking legal advice with creditors beating down his door. The arrogance displayed here and the rapid fall from grace is reminiscent of what happened to Terra’s Do Kwon not long ago.
Look I couldn't let you guys jerk off watching the burn without me
Eth L1 still unusable for newcomers, show it to your grandma if you don't believe me
I'll still bid it hard on any panic dump like this weekend obv
100k eth is dust fwiw, more coming
— 朱溯 (@zhusu) December 7, 2021
Oh, how the mighty have fallen…
The situation in the markets is about to get worse
Henslee believes that this is only the beginning and that a long bear market lies ahead for digital currencies and tokens. He points to the layoffs at Coinbase (NASDAQ: COIN), BlockFi, and Gemini as evidence that industry insiders know hard times are ahead.
With such a large crash induced by an algorithmic stablecoin like UST, one would think the industry would learn its lesson. Yet, Henslee points out that new versions of the same thing are being tried on the Tron and Waves blockchains, and the Tron version has already depegged from the dollar, signaling more trouble ahead. Henslee reminds us that these coins are all based on the same unsustainable yields that led to the downfall of UST and the cascade of events that followed. With sentiment already at an all-time low, another implosion may bury the markets for years to come.
Looking at all of this from afar, Henslee notes how the knives are coming out within the industry as the blame game begins. He points to famous influencer Ben ‘Bitboy’ Armstrong threatening to sue Celsius, laughing at the hypocrisy of someone who has been involved in shilling countless worthless tokens finally getting his comeuppance and having the audacity to play the victim. Since Henslee released this video, Bitboy has backed off the lawsuit, suddenly recalling that he was a Celsius affiliate.
Is there any good in all of this? Henslee says that one of the benefits of crashes and long bear markets is that outsiders come to inspect what’s going on and can see the absurdities that people within the digital currency bubble can’t. He says they are already doing so, with some researchers questioning why a token like CEL (linked to Celsius) even exists other than to enrich its issuers. In time, these questions could lead to investigations and repercussions.
Could Joshua Henslee be wrong?
Henslee acknowledges that he might be wrong about all of this, and there may be another pump to come. One way this could happen is if the Federal Reserve and other central banks blink and loosen monetary policy in response to crashing markets. He reminds us that this occurred in 2008, and while the situation is different this time, a similar response of easing up on monetary tightening can’t be ruled out.
Again, Henslee points out the direct correlation between Tether’s token issuance and BTC’s meteoric price rise. He likewise points to the fact that BTC started crashing when the Tether redemptions began speeding up. For this reason, he believes he isn’t wrong and that a bear market is here, but he acknowledges that the market is unpredictable and anything could happen.
As a final message, Henslee reminds us once again that this industry is full of swindlers and liars who talk about being for the little man when in reality, they’ll dump tokens on him to enrich themselves without a second thought.
Key takeaways: The bear market of all bear markets may be here
Those who have been involved with digital currencies for a while know that bear markets come and go. However, even a veteran like Henslee has never seen a crash quite like this. Major multi-billion dollar funds are being liquidated as the house of cards comes tumbling down, and insiders are running for the exits.
While there will be some token pumps along the way, wider economic conditions are currently unfavorable to speculation on risky assets, and Henslee doesn’t see any path to a quick recovery. Due to the magnitude of the damage this time around, he believes that regulators are going to come down on firms like Tether, meaning we may never see a speculative bull run like this again.
However, throughout Henslee’s videos, he preaches a consistent message; all will be well for blockchains that aim to deliver real utility and which are capable of doing so. He’s still bullish on Bitcoin SV long-term.
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