Crypto’s Rapid Ride Increases Liquidity Concerns

Crypto’s rapid ride increases liquidity concerns. For bitcoin investors, the first weekend of December was a miserable experience. Price declines in the biggest cryptocurrencies occurred as Friday night. Gave way to Saturday morning on Wall Street. With bitcoin shedding around one-fifth of its value.

Although the identity of the seller remains a mystery, one of the more well-connected figures. In the digital asset sector, Brian Brooks, has provided a tantalizing hint. He was a key financial regulator under President Donald Trump. And he has worked as the chief legal officer of one cryptocurrency exchange. Coinbase, and the chief executive officer of another, Binance US. Before taking over as the CEO of bitcoin miner Bitfury.

When speaking at a hearing held by the Financial Services Committee of the House of Representatives on Wednesday. Brooks suggested that the crypto rout could have been the result. Of as few as one or two large players attempting to unload large leveraged positions. In a market that is open 24 hours a day.

When Al Green, a Texas Democrat, inquired as to whether recent episodes of “extreme volatility”. In the cryptocurrency markets were a sign that something was wrong and that investors. Were inflating a bubble similar to the one that preceded the financial crisis. He responded by suggesting that something was wrong and that investors. Were inflating a bubble similar to that which preceded the financial crisis.

According to Brooks, who served in the Trump administration as acting comptroller of the currency. The market’s recent extreme price movements can be linked to the market’s “early stage” of growth. Because there is so little liquidity — he estimates that approximately 80 percent of bitcoin investors. Have never sold — when a major crypto investor sneezes. Everyone gets a cold, according to him and Crypto’s rapid ride.

Unwinding one’s position can have a huge impact on the price

“Even a single person unwinding their position. This can have a significant impact on the price,” Brooks stated in court. The vast majority of bitcoin holders have enough faith in it. That they have practically never sold a single unit of it. So when you hear about a day when the price of bitcoin plummeted. It’s likely that one or two huge traders were unwinding a leveraged position, according to the author. Bitcoin bulls such as Brooks have their own set of arguments for viewing a significant decrease. In the price of bitcoin as a positive sign. Cryptocurrency tokens have experienced dramatic drops in the past. Only to rebound and continue their seemingly unstoppable climb.

However, his research also contributes to the understanding of why so many current regulators. Most notably Gary Gensler, President Joe Biden’s nominee to lead the Securities and Exchange Commission. These are so suspicious of the cryptocurrency markets.

Similarly, if a small number of investors can readily move a marke. Let us assume in this case that they are doing so for fundamental reasons. A smaller number of individuals may theoretically manipulate the market.

The risks are only increasing as laws in countries. Other than the United States become more lax. Price volatility in the cryptocurrency spot market can be quickly exacerbated. By dangerous derivatives positions taken out of the country.

Gensler suggested a clique of industry insiders may fleece other bitcoin investors

Aspen Security Forum in August, Gensler warned that a clique of industry insiders. It could take advantage of other crypto investors. “People buying these tokens expect earnings. And a small group of entrepreneurs and Crypto’s rapid ride and technologists. Are standing up and fostering the projects,” he said. “This also allows price manipulation. Investors are exposed.”

Three months later, the SEC denied US investment firm VanEck’s bitcoin ETF application. According to the commission’s judgment, “persons with a dominant position in bitcoin.” Could influence its price, putting public investors at risk.

As a result, industry acolytes like Brooks are stuck. They want regulators to legalize trading vehicles like VanEck’s to boost liquidity. And decrease price swings in crypto marketplaces.

Despite its libertarian tendencies, the digital asset industry requires more regulatory approval. To encourage institutional investors and corporations to invest in crypto.

Were a clear regulatory framework in place. I wouldn’t be shocked if acceptance grew, said Deutsche Bank analyst Marion Laboure. “Greater acceptance means more liquidity. We would also have less volatility with more liquidity.”

Wild weekends like this one make it difficult for Washington policymakers to trust the crypto markets. No regulator wants to also discover on a Saturday morning. That a bitcoin whale has just cheated public investors.

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