Yield: Masking centralisation risks all along?

Yield: Masking centralisation risks all along?

July 01, 2022

Friends and associates,

June was a month for the record books! Bitcoin fell 34% on the month and 58% on the quarter. ETH fell 41% and 69% on the month and quarter respectively. These are the biggest declines since 2011 as the crypto markets dove into full liquidation mode. Luna's spectacular unraveling in May 2022 resulted in escalating contagion and liquidation in June. A $18bn crypto fund blew up and defaulted on its obligations to crypto lending services. Participants withdrew capital from yield providers en masse taking a fearful precaution against the risk of their capital being gated. I have been in deep reflection these past few weeks, returning to my past articles on yield. As you might expect, my conviction on bitcoin is unshaken, but this is certainly a time for learning.

TLDR

: Desire for stability combined with centralisation and rehypothecation in crypto yield products masked deep credit risks and leverage under the hood. Crypto is violently solving these challenges, humbling participants with another bear market. We will arise from the liquidations stronger than before but there are major lessons to digest on that path.

    Key Insights

    • Crypto yields are not like traditional yields, they are pro-cyclical

    • Stable yields and centralisation masked credit risk and leverage

    • CEFI lenders are banks without a consumer protection regulations and central bank back-stop

    • Fractional reserve banks lead to boom bust cycles

    • Cleansing is healthy and is now reflected in higher bitcoin dominance

    • Sound Money’s foundational principles have stood us in good stead in the face of extreme volatility

    YouTube Videos

    Here are a couple of videos which cover frequently asked questions. Please subscribe to the channel, let me know what you think and send through the questions you would like me to cover.

    Bitcoin Crypto Equity Market Correlation will not last

    • Why are rising correlations are concern?

    • Why is the correlation rising?

    • Should you be worried about the rising correlation?

    • Why I do not think the strong correlation will persist Why bitcoin is attractive, even if the correlation persists

    BitcoinCrypto Equity Market Correlation will not last

    Bitcoin protects against INFLATION so WHY is it falling?

    • Inflation is misunderstood

    • Monetary expansion causes price increases

    • Bitcoin protects against the core driver of price increases, monetary inflation/expansion

    • Bitcoin has offered the best protection over the past 10 years.

    • Assets which have strong correlations with CPI do not necessarily offer the best protection against the inflation crisis

    Bitcoin protects against INFLATION so WHY is it falling?

    Lastly, if you would prefer to receive this information via whatsapp or telegram, let me know and I will add you to the channel.

    Have a great July!

    Rob Price