Now, I certainly don't have any behind the curtains view of this market and am just a simple observer like the rest of us. However, all this money minting in the name of liquidity padding strikes an awful resemblance to what the US Federal Reserve is currently doing in the repo market, which coincidentally enough we discussed at length in yesterday's column.
If this is really the path that the crypto market is headed down then I want no part of it. We should be working hard to create a better market, not emulating the old broken one. The idea of bitcoin introduced the concept of 'digital scarcity' that for the first time, an asset on the internet can be impervious to artificial inflation. But now, we can see that the market that has been built around it is very much heading down a path of greed, and that never ends well.
Bitcoin's price rose by 30% in the month of January. That should be more than enough movement for any trader to be happy with. So why are so many rushing to leverage it?!
Too much leverage always leads to asset bubbles, price manipulation and liquidations. It's a huge roadblock to true price discovery and any gains will eventually be undone. I submit to you a graph of gold who went through this exact cycle about one decade ago. The deleveraging cycle there went from the beginning of 2012 all the way through the end of 2015 and is only now seeing a real recovery, no thanks to over-printing from the Fed.
