Three Arrows (Right to the Chest)
Last week we noted that Three Arrows Capital (3AC), a prop shop headed by the once-beloved Su Zhu and Kyle Davies, was on the brink of exiting the industry. Well, if you have been following our daily market updates, you know by now that this did indeed happen, and 3AC unleashed chaos of leverage unwinds on its way out the door.
In the past week, we witnessed yet another bout of forced selling, leading to a magnitude of liquidations that rivaled the leverage unwind experienced over a month ago when Luna/UST blew up.
Some Combination of Madoff and Long-Term Capital Management
Now that the dust has settled a bit and the pieces are starting to come together, it appears that the industry was brought to its knees the past two weeks by an old-fashioned Madoff-style Ponzi scheme, wrapped in a trade that was fundamentally similar to the positions that steered Long Term Capital Management off a cliff.
Madoff, in this scenario, is obviously Davies and Zhu, who built an admirable reputation in the space, hailed by many as industry-defining “forward thinkers.” They had many thoughts on technology and finance that our team found helpful, and by all measures, the duo was objectively well-versed on many crypto-related topics. However, the application of their theses manifes...Reports you may have missed
BTC AS A POSSIBLE STRATEGIC RESERVE Last week, we discussed the rising political tailwinds affecting crypto. Despite events earlier in the year that might have suggested a changed stance from the Democratic Party, the political divide over the issue has grown stronger. The GOP has become the party that is undoubtedly more favorable to the industry. The attempted assassination of former President Trump, juxtaposed against a Democratic Party seemingly in...
Gox Wallet Movements Still Present a Risk, But Macro & Politics Keeps Us Allocated Here (Core Strategy Rebalance)
DISCUSSING THE SUPPLY CONCERNS On balance, macro conditions have moved in our favor thus far in early Q3. We have received soft jobs numbers and softer ISM reports, and cooler inflation figures, which have sent rates and the DXY lower. Unfortunately, the mere reveal of imminent sales from the German BKA and the solidification of the Mt. Gox disbursement timeline were not enough to put a bottom in for bitcoin....
LESSONS FROM OPEC We have witnessed a significant market panic partially related to formerly locked BTC hitting the order books. The major sources of supply include:Mt. Gox – 141,686 BTCUS Government – 8,100 BTCGerman Government – 50,000 BTC At current prices, this would equate to over $12 billion in supply. This threat, combined with an inhospitable macro backdrop (rising DXY, higher rate expectations, hawkish Fed), has brought BTC down to...
LDO Risk/Reward Looks Good Here, Immediate-term Macro Picture Still Uncertain (Core Strategy Rebalance)
FLOWS AND SENTIMENT STILL SUBDUED Last week, we received a better-than-expected CPI print, but the DXY continued to move higher due to global weakness and a hawkish Fed. We discussed the risks appearing in the metrics we use to gauge sentiment and flows. The overall lack of follow-through in the crypto market was evident. Volumes, net ETP flows, the Coinbase discount, stablecoin market cap trend, and search interest for key...