Transcription
All right. So, Tom, you you've heard what Steve had to say. This is, by the way, not unusual for Nvidia, is it? Nvidia, the good folks at Bespoke, your team, you've recognized that Nvidia will often have these kind of wild swings following earnings, but what is your take right now on these markets?
Uh, well, I think I'm I'm going to kind of add to what Steve said. You know, I think the crypto market has been limping along since October 10th because on that date was a negative shock. I mean, today's stock market looks a lot like an echo of what happened October 10th. But on October 10th, that liquidation was so big, Brian, it really crippled market makers. And now market makers are critical in crypto because they provide liquidity. I mean, they act almost as the central bank in crypto. And if they've got a hole in their balance sheet that they need to raise capital for, they need to reflexively reduce their balance sheet, reduce trading. Um, and if prices fall, they've got to then do more selling. So, I think that this drip that's been taking place for the last few weeks in crypto reflects this market maker crippling. And so, in 2022, it took eight weeks uh for that to really get flushed out. We're only 6 weeks into it. So, I I I kind of concur. I think crypto, Bitcoin, and Ethereum are in some ways a leading indicator for equities because of that unwind and now this sort of limping and and weakened liquidity.
Well, that and that was the that was the point that my my very very smart team behind me, we put together for the top of the show, which was showing that that Bitcoin turned down today before the market did. All right, take us back. So October 6th, I think it was October 6th or 7th, >> Bitcoin hit 125,000. Yeah. A couple days later, it was still around 120,000. Now, obviously, Bitcoin's at 86 and change. So, what specifically occurred on or around October 10th that would lead us to where we are now on what, November 20th?
Yeah. Well, Steve actually pointed this out. There's a lot of what they call automated processes in crypto. One of them is called ADL, okay? And that's an automatic liquidation feature that would take place if someone's account or their collateral drops in price. It's essentially like a margin call. Um, on a specific exchange, a stable coin's price varied from other exchanges. It actually stable coin should stay at a dollar. It dropped to 65, but that only happened within the exchange quotes within this exchange because of liquidity. That triggered an ADL, an automatic liquidation across many accounts. It wiped out as that spread across other exchanges, right? Because liquidations cascade, almost two million crypto accounts got wiped out even though minutes before they were actually profitable accounts.
So, who who is behind this? Like who's the they in the market makers and they got hit? Who's the they?
Well, you know, Brian, I'm I I am aware of names, but because uh you know, I'm not someone who wants to name names. Uh I think what you should keep in mind is that the this error is actually essentially a bug you know a code error because they I think in retrospect they would have pulled pricing from across exchanges to set the price for that stable coin rather than rely on internal quotes. Um so but this has resulted in a lot of market makers and traders having less capital and as you know as crypto prices drift lower because trading volumes drop they need to then have more capital available which means they shrink their balance sheet further. So this is then that reflexive okay weakening.
Um
I hate let me let me go I want to go back to this point Tom. I hate the term glitch. I can't stand the term glitch because you know things go down at the airport and they say, "Well, a glitch cause your flight to not take off." Guess that's not a glitch. That's more than a glitch. It's a word that is used to describe pretty serious automation issues, software problems, crashes for some reason that they try to minimize. Is this some kind of a a software bug that's causing part of this? I'm trying to follow exactly what you're hinting around about.
Uh yeah, I mean Brian it is. I mean uh for instance in 1987 portfolio insurance was the quote glitch and that triggered the cascade in 1987 and so the industry learned uh and then never offered that again. You know in 2009 it was really that the collateral wasn't secure in real estate in these package subprime mortgages. Now, the industry learned and they recoded that. I'm talking about Wall Street. But then regulators came in and like overregulated. That's that was the negative effect of that. In crypto, this code of ADL and the way they pull prices never going to happen again. The good news is we're not going to have overregulation in crypto. But, but now we have to deal with that liquidation effect. 2022 was a big liquidation and it took 8 weeks. Um but it it that is not kind of you're right it is the nature of DeFi where there is going to be code and there's going to be an error found and you said it leverage is what's dangerous and so investors should not be using excess leverage in crypto. Um but
but you applied it in 2022. In 2022, we had what you would call a six-w weekek wash out. Maybe because of this, again, not using the word glitch, this software or coding problem or mistake. Six weeks later, we know what happened. If you bought then you made a lot of money. Do you still think we are in a wash out period in an overall bull market?
Uh, yeah. I mean, I I can tell you a few things. Whether we're talking to macro funds or to crypto funds, they are sitting on piles of cash. People are sitting on their hands because they know there are these plumbing problems and these crippled market makers. They're not going to try to be heroes and step in here. So, when we look at those prior corrections, even Bitcoin in the last few years, Bitcoin last year had some really ugly corrections. Each of them had the recovery, right? The rise from the low was faster than the than the drip to the bottom. So if if we've been suffering through six weeks of Bitcoin falling from 125 to 88 and maybe it goes to 77, right? Maybe that's the low and Ethereum bottoms at 2500. The recovery from there to all-time highs will be faster than the decline. That's what happened in every crypto decline because what what you have is all this spooled up energy. People are sitting and waiting and there's panic selling forced sellers but the buyers are being patient. Um that's what will happen. And again you guys kind of hit it on the head. Micro strategy is probably the most important stock to watch right now because that is the Bitcoin proxy. It's the most liquid name. I I it seems to me that when in the crypto world when they're trying to hedge their longs in Bitcoin and Ethereum, >> they can't find any other way to hedge it except shorting the liquid stocks that have been. So that's the Micro Strategies. Thi this is one of if not the most important interviews I've done this year and that's respectfully to every other guest we've had on this fine network and fine show because I want to dive in a little bit deeper to what you're saying that basically there's some kind of a a software coding problem that's causing a lot of this. Let's bring up guys if we can MSTR that is the company formerly known as Micro Strategy now just known as Strategy. The stock's down 50% in three months, Tom. It's down about 65% from its highs in the middle of July. Is Micro Strategy down because Bitcoin is down or is Bitcoin falling in part because the strategies of the world, the Michael Sailors of the world have to sell the crypto because their equity is going down. What's the chicken? What's the egg?
Yeah. Well, uh again, you know, uh because of my world in research and in on Bitine, we are really plugged into all the trading desks and all the clients that trade. Anybody who has a sizable Bitcoin long position, okay, let's say it's more than a billion, they have very limited ability to hedge it in crypto derivatives like calls the chain. You know, the max they can do is maybe 5% of their holdings. And then if you go to traditional CME exchanges, their contract sizes prevent someone from hedging a billion dollar portfolio. However, someone can use Micro Strategy's options chain, which is so liquid, to hedge all of their crypto. So, Micro Strategy is essentially absorbing all the hedging pressure that the crypto industry is trying to do to protect their Bitcoin longs. So the reason Micro Strategy is a leading indicator, it's actually the only convenient way to hedge someone's long is to short Micro Strategy or buy puts. That's what we're seeing today.
This this is the kind of stuff, Tom. It's one of the main reasons that we bring you on because you understand what I would consider the engine oil of the stock market, right? We know how the engine works or people think they do. But inside that engine, there are gears, there are pistons, there are things that are occurring that for 99.9% of our audience, they don't do this for a living. We get it. This is a really important interview. I'm going to let you go, Tom. Um, we are watching Micro Strategy or Strategy watching Bitcoin and we're watching possibly 77,000 which you think might be kind of a wash out period. Correct.
Yeah, that's right. Tom Demar who is an adviser to Bitmine very well >> really giving us a lot of insights. Yeah. Uh he's watching that >> actually micro strategy at this level here probably is when you want to ratchet into the longs. Um and Bitcoin maybe just a few thousand lower.
So we might we might be at a bottom for for strategy.
Yeah. Looking at maybe the Demar indicators named after Mr. Tom Demar. It's a technical indicator watched by a lot of hitters on Wall Street. Tom Lee of Fun Strat. Appreciate your time. Really super smart interview as always, Tom. Have a great day. Thank you.
Thank you.
All right.