Most Crypto Gurus mistakenly attributed the shakeout in Crypto markets last week to China’s negative media blitz and Elon Musk’s ramblings. That’s NOT the reason for the shakeout. The large drop in Bitcoin which in turn affected other crypto prices was in fact more fundamental in nature.
It was because of the unexpected increase in the perceived supply of supply. With the sharp rise in most Crypto prices people who had bought at the outbreak of the Corona Virus Pandemic, were sitting on handsome gains. Many of these speculators (as opposed to longer term holders) became complacent. Sentiment was high with media hype around the utility value Cryptocurrencies could bring.
Speculators had borrowed money from their Brokers against their profitable long positions to buy more Cryptos on margin.
This information, which is supposed to be confidential, was somehow obtained from public Blockchain networks and taken advantage of by professional crypto traders. Just prior to Elon Musk’s utterings and China’s regurgitation of a 2019 rule professional traders sold large amounts of BTC and ETH for forward settlement.
It’s not important who made these forward sales except to know that it caused a massive shakeout of weak Bitcoin holders and carried through to many other cryptocurrencies.
Unheeded margin calls to overleveraged punters probably triggered forced sales at the spot level as well.
However, an interesting point to note amid this shakeout was the steady rise in value of CryptRights (CR) and Mini CryptRights (CRM).
Why was the price of CR and CRM higher while other Cryptos were getting smashed?
The “store of value” moniker attributed to limited supply Cryptocurrencies had not changed during the shakeout. Meaning the basic ‘fundamentals’ of BTC. CR, XRP and ETC remained exactly the same.
However, what changed was the perception that Bitcoin’s supply had increased. It was not a sudden increase in mining rewards that caused units in circulation to increase.
It was a perceived increase in supply caused by huge forward sales of Bitcoins.
According to Dr. A S Johan, Creator of CryptRight, “The value of any CryptoAsset is really determined by its scarcity. There is nothing other than scarcity that has a more significant effect on a CryptoAsset’s long term value.”
Forward sales can be initiated in one of two ways only: (1) Sell crypto assets already owned by the seller or (2) Short-sell crypto assets borrowed from an exchange or broker. Borrowing has a cost but if the price drop is big enough it can be profitable. These ‘borrowed’ crypto assets actually belong to you and me. It’s held in our brokers account for us.
Many analysts, including yours truly, hold the view that short-sales, with borrowed assets, provide a natural future demand for the asset – since the asset has to be returned to its rightful owner at some point. It’s been said that Warren Buffet lost a billion dollars shorting Amazon stock. Wall Street investment banks had loaned him the shares to short. Unfortunately the borrowed shares belonged to Jeff Bezos…and Jeff decided he wanted his shares back just when Amazon prices were up 150%. Buffet’s investors of course swallowed the loss.
So why were CryptRight prices not affected?
Among all the Cryptos that claim a limit to their total issue, CryptRight has the smallest issue limit and the least number of units in circulation. Anyone selling it short would surely lose a fortune. Therefore CR was not affected by the recent week’s crypto crash.