Conversation

1) A Tale of Two Crashes: Coinbase, FTX, and the future of crypto.

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2) Just over a year ago, crypto had its worst day ever. BTC crashed roughly $4500 top to bottom, from $8k to $3500, stabilizing just over $5k.

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3) And the industry almost ended, maybe. Why?

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4) When people make business decisions, they want resiliency. No one wants their company to get liquidated. But if BTC goes to _literally $0_, lots of crypto companies are toast.

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5) _Anyone_ who's at all leveraged long is gone. Including, for instance, lots of miners. Why? Well, they have future revenue (BTC), assets (often BTC), and expenses (negative USD/CNY/etc.) And, obviously lots of swing traders. And some businesses that you might not guess.

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6) People don't build businesses to survive $0 BTC. But, of course, $0 won't happen. What's the cutoff? What do people plan for? Well, empirically, a bunch (~20%?) of businesses said "we're fine as long as BTC > $4k".

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7) BTC was at $8k, and hadn't dipped below $4k in a while. Then, on March 12th, it did, because of cascading liquidations. About $100B in market cap was wiped out overnight.

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8) And all of a sudden some businesses were kinda may sorta..... fucked. Which sucks. But also, there was borrow/lending (on and off exchanges), business relationships, revenue flow... Another 10% of companies might have gone under doe to bad debt if those 20% had (like 2008).

1:13 PM · Apr 19, 2021Twitter Web App

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9) And then more would no longer have been profitable, because of those 30% and decreased crypto value. The same way stop losses become cascading liquidations, on a longer timescale ripples through the industry would have become waves.

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10) FTX had its all-time high volume that day, around $5B. We didn't celebrate. It would have been like bringing Champaign to a funeral.

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11) Anyway, crypto recovered, everything was fine. And then, a year later, things crashed again, this weekend. From top to bottom, BTC fell $12k, wiping about $500B off of global crypto market cap.

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12) The crash was three times as big as last year, with roughly $10B of liquidations and hundreds of billions of volume. Last time, crypto came dangerously close to ending. This time... everything's ok, more or less.

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13) Why? Partially it's a lower _percentage_ decrease in price. But also partially: *No one in crypto tried to build a business that blows out if BTC goes down to $50k.*

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14) No matter your long-term outlook, touching $50k was totally possible. We were there a few weeks ago! Even people who were "irresponsibly long" generally made more in the run-up to $50k than the lost in the crash down to it.

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15) So market cap was down, but the industry kept running as usual, and no one really worried too much. And, partially because of that, BTC is already back up more than halfway from the bottom. The liquidations are over.

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16) Once again, FTX had a record day, with $30B in volume. (See March 12th on that graph? What is that, volume for ants?)

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17) But this time, we could take a step back and reflect, because the industry wasn't on fire (and neither was the world!) FTX wasn't on fire, either. Last year, FTX, like most exchanges, had significant downtime. It took weeks to go through the support backlog from 3/12.

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18) This time, FTX has 0 downtime, and in fact set its new record low for latency thanks to recent improvements. The industry, in general, handled it much better. But FTX in particular has grown a lot in the last year.

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19) FTX's volume/etc. are up about 8000% in the last year, the fastest of any major exchange. Even since the end of 2020, though, FTX has grown the fastest.

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20) Spot exchanges are *extremely* correlated with net crypto inflows/buying. When people are taking USD --> BTC, Coinbase and Kraken do great. When people are going back and forth, derivatives exchanges do better. Q1 was *great* for Coinbase, and Kraken: unprecedented inflows.

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21) So does that mean Q2 will be bad? Not really -- their volume is about the same as Q1, maybe down a bit. But other exchanges are up, a lot; about 1.5-2x in April!

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22) ....so where are things going? I don't know! It depends on what the future of crypto looks like, and crypto exchanges. Are they primarily institutions that let people turn fiat into BTC? Or are they core clearinghouses for transactions, risk, deltas, and capital?

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23) We'll get more details, too, as financials roll out.

's run-rate added another digit in April. I'm guessing that

's is up quite a bit, too. And a bunch of other exchanges are crushing it locally (e.g.

/

@BithumbOfficial

in Korea).

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24) Finally, earlier I posted a mystery graph; the most common guess was "DOGE volume". Which isn't quite right, but also isn't a coincidence. DOGE does turn out to have been the largest driver of the graph historically.

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25) And, finally, one more tidbit. FTX has grown a lot! It's now trading about $20B/day, a bit over 3x Coinbase. FTX's userbase has also grown; it's up about 3500% since 2019. It's still less than 2% of Coinbase's.

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