14th January 2023 > > The BIS.

tl;dr

It’s always good to know what the enemy is thinking.

Market Snap

Market Wrap

This morning’s market snap deserves two very loud “Wowzer”s.

First up of course is that stunning overnight move across all cryptos, not just the daddy, BTC. SOL is up 40% since I went to bed. Extraordinary. It seems that yesterday’s CCC was well-timed.

Then we must give honourable mention to the perpetual futures funding rate. That move has never been seen before and is unlikely to ever be seen again. Across the board some cryptos’ perpetual futures funding rates are extraordinary – 10bps for BTC at OKX, 11bps for GALA at Bybit, 14bps for MATIC at CoinEx. I could go on, but you get the picture.

Normally, this would indicate way too much enthusiasm by leveraged longs, but that isn’t the cause here, or at least I don’t think so. The speed of this rally has led to shorts being liquidated, further fuelling the rally. I expect (hope?) we will see an orderly unwinding of the resulting imbalance, though one cannot deny that there is a risk of a long squeeze that might undo all the good work of the last twenty-four hours.

Occasional Series – Interregnum

Not only do I get to see Watford play Blackpool today after a long hiatus caused by the totally above-board decision that Qatar was an eminently suitable location for a World Cup, but I am also off skiing for my birthday week.

See you all Tuesday 24th. Take care of cryptos in my absence please.

Curious Cryptos’ Commentary — BIS (Bank of International Settlements)

On the 16th November 2022 I was presented with a golden opportunity to lambast one of the legacy TradFi dinosaurs, BIS, for a biased report it produced on the subject of cryptos. The BIS is the “Central Bank’s banker”, a product of extreme centralisation, whose influence and perhaps even its entire future is brought into existential doubt by the advent of the crypto revolution.

I wear my heart on my sleeve and I am proud of my prejudices (used in the traditional sense, not the current pejorative vogue) against organisations like BIS and the IMF (International Monetary Fund), as tools of coercion and control.

And the BIS has given me another chance to air those prejudices in public.

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BIS Bulletin No 66 “Addressing the risks in crypto: laying out the options” has a neutral feel to the title, which is an encouraging start:

https://www.bis.org/publ/bisbull66.pdf

This report has been commissioned in response to the fraudulent FTX fiasco, which is fair enough in principle, but ignores the fact that FTX was a centralised leveraged scam that used cryptos as its vehicle but was essentially a rehash of many previous TradFi scams seen over the ages.

The economists at BIS see the risks associated with cryptos through a very narrow lens – they fear money laundering and financing of terrorism as if these two heinous acts are enabled solely by cryptos and not at all by fiat.

They worry about monetary sovereignty, and the interlink with stablecoins, and the possibility that cryptos will “divert resources away from the real economy” almost as if the digital world is divorced from the real world, and adds no real value to our lives.

They are right to highlight the dangers of “leverage … liquidity and maturity mismatches” for these risks have always been present in the beginnings of any new financial product. So yes, they are right, but this is not original insight, it’s a statement of the bleeding obvious.

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The report suggests three potential responses to mitigate these risks:

“1. Ban specific crypto activities;

2. Isolate crypto from TradFi and the real economy;

3. Regulate the sector in a manner akin to TradFi.”

Under 1 the BIS not only suggests that an outright ban is an impossibility but pleasingly they point out that “many societies tend to protect the right of individuals to choose as long as they do not harm others…”.

I am starting to warm to the BIS, though the use of the word “tend” suggests some regret on their part that such liberties are embedded in our society.

For 2 the report makes the concession that containment is only justifiable if there is no real-life value to cryptos, which as we see on an almost daily basis in the CCC is very far from the truth.

Finally, regulation is criticised as hard to implement – who decreed that the job of regulators and bureaucrats should be any easier than anyone else’s? – but one suggestion is to “ban” PoW (Proof-of-Work) coins, which is now an old discussion pretty much settled in almost everyone else’s eyes.

At this point, much to my surprise, I am beginning to think that for maybe the first time ever, a representative (in this case BIS) of all the things I fear and detest about the centralised TradFi system (*) is starting to think and learn about cryptos in a positive way, or at least in a more positive way than in the recent past.

Then they go and blow out.

There is a suggestion to develop an alternative which includes the chilling phrase “Another option is to issue central bank digital currencies (CBDCs)”.

Go figure.

Regular readers already know my stance in detail about CBDCs so there is little point repeating once again the horrors they entail. Suffice to say that when BIS claim that CBDCs “promote user control over data and privacy” they know not of what they speak.

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(*) To be clear, most of the centralised TradFi system works exceptionally well and adds huge value to our lives. But there are some elements of it that are simply out of control, to the detriment of us all.