Yearly Attack Waves on Crypto Are Becoming Less Scary

Compass 141

It’s been a tumultuous week.

In the weekly start playbook, we mentioned that a retest of $65k was not out of the question and that we didn’t see this happening without a negative catalyst in a week free of macro fundamentals. As we saw, the correlation with American indices dragged Bitcoin down, leading us to retest this zone.

Let’s explore what’s next.

Warning Shots.

• In this market, it's impossible to let your guard down, because sometimes you don't know where the next FUD will come from, spreading volatility you didn’t see coming. And on Friday, we had two FUD events in a single day. On one side, there was an event within the crypto ecosystem itself, and on the other, a sudden increase in geopolitical risk.

• The Wall Street Journal reported that the U.S. Department of Justice has launched a criminal probe into Tether, the issuers of USDT, the largest stablecoin by market capitalization, which led to a flash crash causing Bitcoin to drop by 2.5%.

• The market quickly recovered after Tether's CEO, the most visible face of the company, denied the claims reported by the U.S. newspaper. Those who follow the daily happenings in the crypto ecosystem know that occasional FUD about Tether and USDT is almost an annual tradition.

• Remember when Binance and CZ were the favorite FUD topics in U.S. media? Even before the FTX implosion, there was constant scrutiny. Of course, once CZ’s “head rolled,” the FUD around Binance subsided (who even remembers that Proof of Reserves for exchanges was a thing). Something similar might happen with Tether in the near future, and the timing is not accidental.

• There have been previous reports where Tether was accused of challenging and bypassing U.S. sanctions, allowing asset transfers via stablecoins to countries and entities sanctioned by the U.S. government. So, this is just another episode in a saga that is far from over.

• And on the other hand, we had a sudden increase in geopolitical risk that, in just a few minutes, caused Bitcoin to revisit the levels it had previously recovered, triggering another flash crash down to $65.5k before bouncing back to $67k. Altcoins were especially affected, recording losses of up to double digits. The impact of a potential Black Swan event was quickly absorbed by Bitcoin without major consequences.

• In the meantime, our speedometers indicate everything is as we left it last time, with risk at zero, a regime dominated by Bitcoin, bullish momentum, and fundamentals in a neutral and stable position. Let’s see what the weekend brings.
  

Speedometers indicating the current state of BTC. The full dot represents the current reading and the white dot represents one week ago.

Tether Risk.

• The Risk Index remained unchanged despite the flash crash in price, triggered by Tether-related FUD on one hand and a correction in the S&P 500 on the other. Events like those involving Tether should always be approached with caution, as they represent potential endemic flaws in the crypto ecosystem and can act as a domino effect.

• If we don't step outside the crypto environment, we may not fully recognize the type and scale of a company like Tether.

• Tether, in its Q2 2024 attestation, reported the following:

1. $1.3 billion in net operating profit.

2. $520 million increase in Tether Group’s equity, bringing it to a total of $11.9 billion.

3. $5.33 billion in excess reserves.

4. More than $97.5 billion in U.S. Treasuries (direct + indirect exposure), an approximately $7 billion increase from the previous quarter, marking a new all-time high.

• What grabs attention is that, with these figures, Tether has reported $12.72 billion in net profit since Q4 2022, making it significantly more profitable than BlackRock’s $9.83 billion.