Bitcoin broke below $20,000 last night. I got a message on Signal while I was sleeping. 

On June 18, 2022, at 6:51 UTC, the price of bitcoin fell from $20,377 to $19,245 on Kraken and then slipped to as low as $18,728 before catching its breath. As I write, it is now $19,174.

Ether also broke below $1,000. The buy wall was destroyed in a matter of seconds.

Bitcoin has now fallen below the previous all-time high it set on December 17, 2017 — officially marking the end of the crypto bubble. The party is over.

Two years ago, as bitcoin embarked on its incredible journey to $69,000 — a number it reached on November 9, 2021 — it was $10,000. At the start of 2020, bitcoin was trading even lower, at around $7,000.

Those numbers give you a sense of how much further bitcoin can fall. As dramatic as the run-up was to $69,000 when every bitcoin bro imagined bitcoin would shoot to the moon, the fall can be equally so, and that is what we are seeing now. 

Of course, everyone is asking, why did bitcoin plunge so quickly Saturday night? What pushed it below $20,000 so suddenly? Somebody is selling. Who needs to sell? 

Miners have to sell to pay their power bills. They mine 900 newly minted bitcoin per day. The bitcoin network consumes a country’s worth of energy. 

The miners have been borrowing money from their buddies, DCG and Galaxy, to cover business costs rather than selling since July 2021. But they can’t borrow any more dollars, so they’re dumping their coins. They also have to pay their credit bills when those loans come due. 

Who else is selling? Any number of crypto lenders, yield farms, and other decentralized finance firms that are running desperately low on liquidity — and there are many of them. 

Last month, Terra/Luna toppled over. This was DeFi’s Bear Stearns moment. Things seemed to settle down for a moment, but behind the scenes, a titanic shift had begun — the wrecking ball was in action. In the chain of reactions that followed, two other Ponzi schemes collapsed: Celsius and 3AC. Smaller outfits Finblox and Babel soon followed — and more are to come.

When investigators look back and piece together the causes of the crypto apocalypse of 2022, key factors will be huge VC money pouring into the space, the massive printing of Tethers — from 4 billion at the start of 2020 all the way to 83 billion earlier this year — and Grayscale’s Bitcoin Trust.

GBTC was an attempt to wrap Bitcoin in an institutionally compatible shell. As I wrote in “Welcome to Grayscale’s Hotel California,” GBTC’s arbitrage trade brought billions of dollars of real money into the crypto ecosystem.  

It also caused explosive growth in crypto leverage. Many of the firms that are collapsing now, looked to GBTC as a way to deliver ridiculously high returns. They would exchange their cash or bitcoin for shares of GBTC and after a 6-12 month lockup, sell those shares on the secondary market for a premium to retail investors. That premium averaged around 18% in 2020. 

It was a sure-fire way to make money until the premium dried up. GBTC has been trading below the price of bitcoin since February 2021.  

All through 2020 and into 2021, there was a massive retail inflow of cash chasing a “reflexive Ponzi” in the form of a GBTC arb situation. And all Ponzi schemes end the same way — they crash stupendously.

See also David Gerard’s post on the bubble pop.

Further reading: “The Latecomer’s Guide to Crypto Crashing,” by David Gerard and Amy Castor

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