It all started with Do Kwon and LFG
As LFG reached its initial $3bn BTC reserves target, it took 5 days before UST’s peg was in shambles, and the 80,000 BTC reserve was deployed in a desperate attempt to save the peg. Luna and UST collapsed, leading to contagion and more sell-side pressure in the months to come.
Source: BitApps, Luna Foundation Guard
Initial miner selling in MayMarkets soured, and public miners were pressured to initiate the selling of their precious BTC holdings in May.
Public BTC miners sold 4,456 BTC in May.
Source: Monthly production updates (All public miners)
TeslaSome time in between and amidst this. Tesla sold 75% of its BTC stack. We estimate Tesla’s sales to be 29,060 BTC at an average price of $32,209.
This estimation is based on previous VWAP estimates from their initial BTC purchase (avg price $34,841) and the sale of 10% of their BTC to “test liquidity” in Q1, 2021. Assuming the 10% BTC sold in Q1 was sold at $50,000, Tesla’s new break-even price of BTC was approximately $33,325, meaning that Tesla sold at a small loss.
Source: Tesla, Tradingview, Arcane Research
CPI-surpriseEnter June 10th, and the U.S. CPI surprise. Correlation sent prices south, bankrupting several whales already under pressure post Luna’s collapse. On June 12th, Celsius halted withdrawals, and rumors regarding 3AC’s meltdown murmured. Leaked court documents have revealed that 3AC owes lenders 18,193 BTC and a GBTC equivalent of 22,054 BTC.
Following the collapse, 3AC creditors hedged and de-risked exposure in attempts to fix the balance sheet holes while liquidating 3AC, causing a proper fire sale.
Source: Leaked Affidavits
Amid the Luna, 3AC, Celsius contagion, a massive redemption of 24,510 BTC occurred in the Canadian Purpose ETF creating further fire sale pressure in the market.
Miner selling intensifies in JuneMarkets got bleaker, and the small selling pressure from BTC miners in May grew big in June. Public bitcoin miners sold 14,600 BTC in June.
Source: Monthly production updates
Celsius preparing for Chapter 11Celsius’ prepared for Chapter 11 and repaid its DeFi loans, freeing up 21,962 WBTC in early July.
Atop of the WBTC, Celsius had a substantial allocation in stETH, rumored to be acquired by Alameda at a 15% discount in June. Alameda likely hedged their stETH exposure, leading ETH OI to moon while creating a temporarily brutal downward pressure in ETH, impacting the wider crypto market.
The issue with macro on-chain indicatorsIn late April, I tried to challenge the view of certain macro on-chain indicators. Most of the selling pressure since May has originated from sources not necessarily reflected in exchange balances and sources I mentioned when looking into how the “productification” of bitcoin might impact the market.
Source: Glassnode, Skew, Dune, MicroStrategy, Tesla, Square, Meitu, Aker, Bytetree, VanEck, Proshares, Hashdex, StatusInvest
So where are we now?The last 2 months have been an obvious capitulation. Most of the selling of the 236,237 BTC mentioned above has been forced selling, and it’s likely been worse than what this research covers with underwater retail and institutions capitulating. The Chapter 11s, 3AC court documents, normalization of the stETH/ETH price, and the relief rally seen in the last few weeks tell me that contagion is getting resolved. Less uncertain times ahead.
Source: Tradingview (FTX)
Contagion done for nowI tend to lean in favor of forced selling and contagion-related uncertainty being done for now. Markets will normalize. We will likely slump, pump, and dump in choppy conditions in the coming period, and macro and correlations will possibly resume being the key force of the market.
However, the reduced presence of dollar-indebted institutions (i.e Tesla and miners) might contribute to lifting some of the correlation forces.