In this issue
- Bitcoin plunges to six-month low
- Sinking feeling on Iron Finance’s Titan-ic
- For China’s miners, it’s Westward Ho!
From the Editor’s Desk
Geography is a subject that doesn’t come easily to everyone, but this week may have been something of a crash course, starting with an oft-overlooked nation that’s as big as the whole of Western Europe.
We’re talking about Kazakhstan, a country given a dose of unwelcome publicity by British comedian Sacha Baron Cohen a few years back that’s now becoming better known as a new home for displaced Chinese Bitcoin miners.
This huge nation — four times the size of Texas to the northwest of China — has rolled out the welcome mat for miners fleeing Beijing’s crackdown on their industry. And geographically-mobile Chinese miners are looking even further west for friendlier shores — as far afield as Europe and the U.S.
Meanwhile, other things have gone south in the past week, notably Bitcoin and a DeFi token called Titan that hasn’t quite lived up to the promise of its name.
Another day, another dip, some may say of Bitcoin’s latest wobbles. But at least it’s got staying power; the original crypto is still way up from where it was just over a year ago.
Sinking into much deeper latitudes was Titan, or should we say, “Titan-ic.” Its plight has by now been well documented. The question now is how to prevent a repeat.
Perhaps — to stretch the metaphor — we need a map.
Until the next time,
Founder and Editor-in-Chief
1. Bitcoin dips to six-month low
By the numbers: Mother of all crashes — over 5,000% increase in Google search volume.
Bitcoin yesterday dipped below the US$30,000 mark for the first time since early January, with its hashrate falling below 120 million terahashes per second for the first time since Nov. 7, 2020 — when Bitcoin was trading just below US$15,550 — according to data from Blockchain.com. BTC has since bounced back and is trading at US$34,374 at press time.
- Scion Capital founder Michael Burry — who anticipated and profited hugely from the subprime mortgage catastrophe that triggered the global financial crisis in 2007, and who was portrayed by actor Christian Bale in the Oscar-winning film “The Big Short” — predicted on Twitter that the crypto market would be the “mother of all crashes.” Burry has since deleted that series of tweets.
- The long-short ratio on Bitcoin is almost evenly balanced on major exchanges. Long positions were slightly heavier, at 50.77% to 49.23% in shorts at press time.
Forkast.Insights | What does it mean?
Bitcoin fell to a current-year low of US$28,893 yesterday before its price spiked above intraday highs of the previous three days to reach US$34,400. In those numbers, two important things deserve attention.
First, US$28,893 is a far cry from Bitcoin’s mid-May all-time high of US$$64,863, but don’t forget that in 2020, its price fell as low as $4,916.78. From that low point — on “Black Thursday” in March 2020 — Bitcoin is still up more than 600%.
To get to last week’s low, it took Tesla founder Elon Musk denouncing Bitcoin’s power consumption to start a downtrend. Bitcoin was then hit by crypto mining crackdowns in China, which until recently generated more than half of the electricity supporting the global Bitcoin network. To top it off, two hugely influential investors — Burry and Robert Kiyosaki, the best selling author of “Rich Dad Poor Dad” — weighed in.
Although BTC price movements since May must be frightening for retail traders new (and not so new) to the crypto space, those same traders — who were tempted to invest in memecoins and other hype-tokens — should try to keep in mind that Bitcoin is still up more than six times since its 2020 low.
Second, Bitcoin rallied 15.92% in less than 12 hours following its 2021 low, which likely means that while newbie retail traders were losing their minds and selling in fear, institutional players who may have missed Bitcoin’s earlier bull run are likely now getting into the space. Stay tuned for statements saying that big players have dived in, triggering Bitcoin’s rapid recovery.
And so it goes. Retailers fall over themselves, buying in late when Bitcoin is already oversold in the US$50,000-$60,000 band, then panicking and selling when their influencers go negative. And traditional finance sector players with deep pockets and savvy advisers swoop in and reap the rewards.
2. A Titan-ic moment in DeFi
By the numbers: Titan — over 5,000% increase in Google search volume.
In what multichain decentralized finance protocol Iron Finance calls the “world’s first large-scale crypto bank run,” its impressive US$2 billion-plus total value locked plunged to previously unplumbed depths, and stood at US$9.8 million at press time. Iron Finance’s governance token, Titan, had plummeted from an all-time high of US$64 to a miniscule US$0.000000101323 by press time. Its U.S. dollar-pegged stablecoin, Iron, lost its peg and was trading at US$0.80.
- Iron is 75% backed by USDC and 25% by Titan. Iron enters the economy when users lock Titan and USDC tokens in those ratios. Users can also redeem Iron, which results in the minting of new Titan.
- In a post-mortem published by Iron Finance, the team dissected the wipeout.
- Whales — large scale investors — removed large amounts of liquidity from Iron-USDC pools, sold Titan for Iron, then sold Iron for USDC. Because of the interdependence of Iron and Titan, that sent Titan prices spiralling downward from their US$64 all-time high to just above US$30.
- The fall of Titan took Iron’s U.S. dollar peg with it. Because Titan was partly responsible for Iron’s backing, the stablecoin lost the peg.
- Whales then resumed cashing out, sparking a mass-panic selling event that saw offloading of TITAN en masse and redemptions of Iron — which triggered even more minting of Titan, pushing prices ever lower.
- The target maximum supply of Titan tokens was 1 billion. Following the frenzy of minting, its total supply was closing in on 35 trillion as of press time.
- Despite early speculation, Iron Finance denies any suggestion that the event was a “rug pull” or an exploit.
Forkast.Insights | What does it mean?
Fundamentally, yield farming is a process that allows cryptocurrency holders passively to earn rewards by depositing their holdings into liquidity pools, which are smart contracts with funds used to power a particular DeFi market — such as Yearn Finance.
Liquidity pools — especially those with stablecoin pairs — are viewed by some as something of a “cheat code” for crypto investors that have found their way into the DeFi, or decentralized finance ecosystem. They — especially those with stablecoin pairs — allow crypto investors to utilize their assets as interest-bearing currencies.
Some liquidity pools still allow investors to gain stratospheric returns topping 100%, and some newer protocols even offer more than 1,000%. Investors that lock their tokens into liquidity pools are known as liquidity miners, or yield farmers, committing their funds to provide liquidity to a certain project in exchange for interest.
On the face of it, this seems to be an almost perfect way of generating revenue from stablecoins — especially for investors looking to safeguard their capital from crypto’s notorious volatility.
But Iron Finance proved to be far from perfect — just ask billionaire investor and Iron Finance liquidity provider Mark Cuban.
When a major liquidity provider — a “whale” yield farmer — in the Iron Finance ecosystem removed their liquidity from an Iron/USDC pool and cashed out, they triggered the chain of events described above, which resulted in a minting frenzy for the DeFi protocol’s governance token Titan, that sent its price to rock bottom.
In the world of DeFi, where regulations don’t exist, a whale’s actions can cause an entire token’s economy to cease proposing value. How can investors protect themselves in such an environment?
Investor protection is currently non-existent in DeFi. And regulators around the world have taken notice. Will they step in to protect investors? It remains unclear how regulators will grapple with these novel dynamics.
For now, out on DeFi’s hyper-frontier, it’s every man for himself, with the occasional Moby Dick.
3. For China’s miners, it’s Westward Ho!
Against a backdrop of Beijing’s continued clampdown on the crypto-mining industry, Chinese cryptocurrency miners are heading west, with Kazakhstan, North America and Northern Europe becoming early favorite destinations.
- Kazakhstan’s location — just across the border from Xinjiang, a northwestern Chinese region that was once a hotbed of crypto mining — and its abundant coal resources for generating cheap electricity have made the landlocked nation a promising destination for China’s crypto miners.
- BIT Mining, a New York-listed Chinese crypto mining firm, plans to move 2,600 crypto mining machines to Kazakhstan by July 1. A month ago, BIT Mining also announced plans to invest US$25.7 million in a crypto mining facility in Texas.
- Some U.S. states are welcoming the opportunity to host Chinese miners. Miami’s mayor, Francis Suarez, recently invited crypto miners to tap the state’s nuclear power while Texas Governor Greg Abbott announced a law that would create a master plan for expanding blockchain in the Lone Star State.
Forkast.Insights | What does it mean?
It’s official. The greatest geographical shift in the Bitcoin network since the start of the crypto mining era is under way.
China has long been the powerhouse of the world’s original cryptocurrency, accounting for more than half of global Bitcoin production in recent years. But its formerly booming Bitcoin mining hubs of Inner Mongolia, Xinjiang, Sichuan and Yunnan are being emptied of their operations amid a series of sweeping crackdowns. Chinese miners are now migrating west, looking for sanctuary in places such as Texas, Maryland and Kazakhstan.
The first two Chinese regions hit by the campaign were Inner Mongolia, soon followed by Xinjiang. The bans and restrictions in the two regions made sense to many, as they were assumed to be a response to crypto farms’ insatiable hunger for electricity, which in those locations was coal-fired, posing a serious threat to Beijing’s carbon-reduction goals.
However, China’s crypto mining crackdown soon spread to the provinces of Yunnan and, more recently, Sichuan. Both provinces boast abundant hydropower, which is sustainable and clean. Beyond a drought in Yunnan that also affected the supply of hydropower to the province’s tin-smelting industry, there are no obvious explanations for the move by provincial authorities to end mining there — at least none short of what can only be assumed to be a nationwide campaign to end crypto mining in China. After all, Chinese Vice Premier Liu He said in May that it was necessary to “crack down on Bitcoin mining and trading behavior.”
Regardless of the reasons, a great hashrate migration is now unfolding. An exodus of Chinese miners is in full swing, and China’s government seems set on slamming the door behind them. However, it will be interesting to see how this period comes to be remembered. Perhaps Beijing believes that by closing China’s crypto mines, it can end the pesky phenomenon of decentralized digital currencies once and for all. But as Bitcoin miners migrate elsewhere, the period may be remembered as one of the greatest economic blunders ever made by the normally very strategic, patient regime in Zhongnanhai, which has de facto surrendered the little control it had over a finance sector innovation that may yet hold the key to reordering the global financial system.