Transcription
When you, when you lose a little leg of the stool, down you go much faster.
Well, said Steve Sosnick, Interactive Brokers. Steve, appreciate you jumping on. Thank you very much.
All right. Joining us now is Fundstrat's head of research, CNBC contributor Tom Lee, also the chairman of Bitmain Immersion Technologies and Ether Treasury company. All right. So Tom, 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?
Well, I think 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 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, they need to reflexively reduce their balance sheet, reduce trading. 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 for that to really get flushed out. We're only six weeks into it. So 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 seventh. 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. 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 on a specific exchange. A stablecoin's price varied from other exchanges. It actually stablecoins should stay at a dollar. It dropped to $0.65, 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 2 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 am, I am aware of names, but because, you know, I'm not someone who wants to name names, 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 stablecoin rather than relying on internal quotes. 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 weakening.
I hate. Let me, let me.
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, glitch caused your flight did not take off. 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.
Yeah. I mean, Brian, it is. I mean, for instance, in 1987, portfolio insurance was the, quote, glitch, and that triggered the cascade in 1987. And so the industry learned and then never offered that again. You know, in 2009, it was really the, the collateral wasn't secure in real estate and these packaged 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 eight weeks. But it, it, that is kind of, you're right. It is the nature of DeFi where there is going t