Bitcoin’s Bounce, or Shady Dead Cat Whale Pump?

If that headline didn't grab your attention, I don't know what will.

The big talk 🤔 

There has been much rejoicing this week - if you ignore the continued spate of busts and companies freezing withdrawals. Bitcoin’s price has hit rock bottom and is now skipping its way back to the $1 million that everyone has proclaimed it would hit every year since 2018. But some are rightly questioning the sudden reversal in fortunes. 

In financial circles, a sudden uptick in prices during a period of decline is called a dead cat bounce. Like a deceased feline thrown from a tall building, after it hits the floor, it does indeed appear to bounce. But after the initial miracle, the cadaverous cat falls back to earth, spreading its guts all over the pavement. Many believe the entrail portion of this bounce is just around the corner. 

One analyst on crypto quant, a crypto analytics provider noticed that the uptick in prices came as a result of a few whales - traders with more money than god - pushing up prices. This is corroborated by data from Glassnode, another analytics company that noticed whales are accumulating Bitcoin at the fastest rate since January 2021. 

Why would huge holders of Bitcoin be buying up more Bitcoin when prices are so low? The more optimistic view is Bitcoin is seen as a good deal now, as it treads water at 70% below where it was during the last boom. 

But a more sinister answer lies within the DNA of Bitcoin itself. When Satoshi Nakamoto released the white paper for the world’s first cryptocurrency, he/she/they/it thought it would be a good idea to limit how much Bitcoin could be produced. Economists call this a deflationary model. Let me explain. 

In the normal world, we typically live in an inflationary environment. That means that over time, the purchasing power of your money declines, and the value of things goes up. Most governments try to keep inflation at or below two percent because it’s broadly accepted that some inflation is good because it keeps people spending and borrowing. 

👉 If you want to go all in on inflation, Investopedia has a great explainer. 

Bitcoin however, was designed to do the opposite. Because no new BTC could be created, the theory goes, that over time, the price would continue to climb. The unintended side effect of this idea is that it becomes far easier to monopolise supply. Because no new ones are created, if you keep buying, you control a bigger slice of the pie. And Bitcoin’s pie is dominated by whales. Oh, and there's no third party saying, "hey, you can't do that."

At last count, a selection of whales controls 45% of Bitcoin’s entire supply. 

But Matt, who cares, surely this happens everywhere all the time, why should we give a damn? 

Well, dear reader, Bitcoin, and crypto have been prone to manipulation all throughout their short life, which is really really bad for the future of the industry, and your wallet. Here are a few examples: 

• Between October and November last year, Shiba Inu’s price rocketed for some reason, reaching a market capitalization of over US$20 billion. On closer inspection, researchers found that 8 whales controlled 70% of the token, and were essentially pissing around with the price to increase profits. As a result, they made off with an 800% return on their investments.
• In 2017, a single Bitcoin whale caused the price to surge to a record high of US$20,000 per token. 
• In February 2021, Ether’s value fell from US$1,628 to US$700 for a minute on the crypto exchange Kraken. A closer look, Kraken CEO Jesse Powell felt that it was a single whale that “decided to dump his life savings”, thus resulting in the plunge.

Why does this all matter? Because many people are choosing crypto as the sole avenue for improving their financial standing, believing its inclusive, decentralized nature is a better alternative to traditional finance. 

What we’re increasingly seeing, however, is crypto increasingly controlled by a cabal of wealthy whales who are anonymous, unregulated, and don’t care about your good intentions. 

As the chart shows below in our chart of the week section, the concentrations of wealth in crypto are growing to worrying amounts. Meaning crypto is in danger of becoming just another playground for the super rich and a graveyard filled with your hopes and dreams. 

What people are shouting about: 🗣️

• Governments have had enough of crypto’s wild west - After the rout of crypto companies like Celsius and Three Arrows Capital, governments are stepping in to protect investors from themselves. Singapore, which has thus far, had an open door policy for crypto projects, is now closing that door, and pushing the dining table, the chairs, and the sofa behind it with a slew of tough new regulations. 
• Binance tried and failed to convince journalists it has a headquarters - as regulators get their act together and begin policy rollouts for crypto specifically, Binance continues its strategy of vague evasion with promises that at some point, in the future, it will actually create a headquarters that disgruntled customers can mail their lawsuits to.
• Celsius is going to mine its way out of trouble - The phrase ‘you can’t dig your way out of trouble’ has never seemed so appropriate. Celsius, the CeFi project with a $1 billion hole in its finances and more than $4 billion in debt has told reporters it's going to pay everyone back by just mining bitcoin instead. But there’s a twist. The Bitcoin farm it owns isn’t finished and still needs $5 million to complete it. Fancy a flutter? 
• Minecraft says non to NFTs - Mojang Studios, the company behind Minecraft released a statement this week saying it will not be allowing NFTs on its platform. To be clear, many users have been using NFT technology to buy and sell in-game items for years. But Mojang is now taking steps to block servers with NFT usage found on them. Oh dear.  
• Short sellers are having a field day at crypto firm’s expense - Short sellers, traders who place bets that a company is going to fare worse in the future have been piling pressure on Grayscale, one of the biggest investment companies working in crypto. By betting against its Bitcoin product, GBTC, short sellers have made more money than any other exchange-traded fund in the last six weeks. 

The at first glance incredibly boring, but in reality, incredibly insightful and interesting thing you should read this week 🤓

A profile on Sam Bankman Fried sounds about as interesting as, well, an interview with an introverted billionaire who only wears shorts and t-shirts, even when he’s on camera with Giselle.

But Bloomberg has been examining SBF’s altruism, revealing that rather than being a cuddly character who is doing a nice thing by helping out his rivals, he’s in fact, on an endless mission to seize control over crypto. 

Chart of the week 📊

Messari dug out all the token allocations of crypto projects when they launched. Concentrations of insider ownership highlight the challenge to decentralize networks chock full of whale holders. 

Strange but true 😱

• You can now buy an NFT Karen - the moniker that launched a thousand memes has been converted into a bored ape clone, which you can now buy, if you literally have nothing else to do with your money. 
• The great Elon Musk flip flop - do you remember back in 2021 when Elon Musk said he wouldn’t buy Bitcoin because of how bad it was for the environment and then bought a lot of Bitcoin soon afterwards? Well, after it was announced Tesla had sold 75% of its BTC holdings this week, he has, once again, said, it’s coz the environment. In an earnings call with investors, he said: “he doesn’t think about it much.” Someone should tell his Twitter profile that. 
• More Celsius funny business - A flurry of stories around Celsisus has been emerging this week. Arguably the stinkiest came from Timothy Cradle, Celsius’ former director. In an interview with CNBC, he said Celsius was trading the token to manipulate the price and only a compliance team of three people. Sheesh.
• Crypto scammers make clone apps in latest scam - As the great crypto fleecing continues, the FBI has found several spoof apps posing as legitimate ones have been downloaded by millions of Americans. The apps perform as normal, until a user tries to withdraw funds. Be careful out there. 
• A group of gamers is going public - despite promoting crypto scams - FaZe Clan, a group of gaming celebrities and esports pros that helped pioneer the influencer marketing industry, began trading on the Nasdaq Wednesday after merging with a special purpose acquisition company. But in doing so, the group’s shady past, including promoting a number of crypto scams has resurfaced. 

Fin.

Thank god for that.

Thanks for reading, and please like, share and subscribe, because I have a crippling amount of crypto stuck in Celsius, and daddy wants a new laptop this year!

Ok bye! 💋