27th April 2023 > > Mt. Gox, Silk Road, and memes.

tl;dr

The flash crash that wasn’t warranted, and the flakiness of meme coins is exposed.

Market Snap (at time of writing)

Market Wrap

Those wild swings overnight have caused a lot of pain for the leveraged children, which is no bad thing. I suspect they will never learn.

For the reasons behind this bout of elevated volatility, read on below.

Curious Cryptos’ Commentary – Mt. Gox and Silk Road

Last night’s flash crash, when BTC dropped 10% in less than an hour, appears to have been due to false warnings that wallets linked to the Mt. Gox fraud nearly a decade ago, and wallets linked to the government’s seized stash from the original Silk Road, had become active.

The common perception is that when these wallets do start selling that will be a trigger for a major correction in crypto prices.

Well, guess what? I feel a bout of contrarianism coming on. As a rule, when there is such a strong consensus, be it in cryptos, economics, tax policy, a multitude of social issues, or politics, and that consensus is being prosecuted by so-called experts, that consensus is usually wrong.

A trustee of the Mt. Gox unwind is holding 142,000 BTC on behalf of creditors, a mere 0.73% of total outstanding supply. Owners of these coins have been locked out of them since 2014 which might suggest they could be keen sellers. An alternative view is that these early adopters of BTC are likely to have made further investments over the intervening years. A significant proportion are possibly diamond hands.

The US government’s stash of seized BTC amounts to 51,532 or just 0.27% of total outstanding supply.

Even more relevant is that nearly 20% of these coins – 9,861 in total – have already been sold on March 14th, 2023. Regular readers will recall that between 12th and 16th March, 2023 that BTC rallied from $20,500 to $24,700, price action that doesn’t strike me as being deserving of a sell-off description.

In any case, this sale would not go through a centralised exchange but would be brokered to either individuals or institutions by OTC trading desks and into what are most certainly diamond hands.

The market already knows of these events, though not the timing. This false consensus means that prices are depressed from where they would be without these two factors. Once the Mt. Gox coins have been distributed, and the US government completes the sale of the next four tranches of Silk Road coins taking their holdings down to zero, these unwarranted fears will dissipate, resulting in upward price pressure on BTC, all other factors being equal.

Contrarianism wins again.

Curious Cryptos’ Commentary – Meme coins again

In a timely manner following yesterday’s critique by the CCC of meme coins, I find analysis on Twitter that claims the proceeds from the sale of 113 fake meme coins in the last six weeks alone were all transferred to wallet 0x739c58807B99Cb274f6FD96B10194202b8EEfB47 and then onto Coinbase to exchange for fiat:

Note that this isn’t a scam as such.

Anyone can set up their own coin and fund a liquidity pool on any of the many DEX (decentralised exchanges) out there. If degens decide to buy it, reducing the stock of stablecoin in the pool, and the creator deposits more meme coin in exchange for the excess stablecoin, then there is no coercion, nor are there false promises being made.

Steer clear of meme coins please folks.