Even though we could have foreseen a price decline before the Mt Gox Day, not many could have foreseen in such a crash as last night. It seems that the crypto market is also infected by the flight-to-liquidity pandemic.
Before the crash of last night, we saw some senior miner’s addresses starting to sell, which implies the crash could indeed be triggered by the chase for liquidity, probably due to margin calls in other asset classes. The address 3CU4AYJH23ePNnKsycinP5TSogCNGsyqCc started to split its 1000 Bitcoins into a bunch of small amounts of 15 on March 11, which is a prelude to the definite transfer to exchanges.
When we further dig into the input addresses, we find they are all miner addresses dating back to August to October 2010. Bitcoins previously owned by the addresses had never been moved until March 11,2020. These tokens were finally transferred to various exchanges including Coinbase, OKEX, and Huobi.
The Fed responded last night to the market crash with a 2.5 trillion USD injection to the repurchase market with different maturities of 1 month and 3 months, while overnight repurchase and 14 days term repurchase will continue. Only primary dealers could tap this money. This is at least what the Fed can do now.
However, from the initial bid, primary dealers seem reluctant to take repo money for 3 months, which might be due to their reluctance to lend this money out during the huge uncertainty. It seems that they are more interested in shorter-term money, say overnight and 14 days.
Rate markets already expect a 100bp cut next Tuesday. It is almost priced in, so will not help much. The market expects more, like the direct purchase of corporate bond index or even equity index by the Federal Reserve. But that requires modification of some regulations, which have to be approved by Congress, and is not an easy task in the near term.
We have seen some strong hands bottom fishing cryptos this morning, and it seems reasonable after the tremendous crash overnight for strong hands, while weak hands wait for the Mt. Gox decision.
This article is part of our ongoing Crypto Insight series.
Check out our previous article here.