According to Meltem Demirors, the chief security officer at CoinShares, the crypto winter may last till the beginning of the actual winter in Q4 and even into early Q1 of 2023. Demirors’ research shows no indications that an upward catalyst is near, which would trigger a quick turnaround from the months-long declining trend.
7/ next, i look at crypto rates + liquidity, and source data from our trading desk or quotes from MMs
the demand for borrow has declined dramatically, resulting in yield compression
on the borrow side, the bid for cash has evaporated – seeing 1- 2% on exchange, v 17% last fall
— Meltem Demirors (@Melt_Dem) July 11, 2022
Crypto will continue to suffer
Meltem Demirors’ assessment of the market came as the crypto king Bitcoin struggled around the $20,000 mark. She did not, however, state a positive position on bitcoin in a downturn given the macroeconomic context of the Fed raising rates and the Euro losing value relative to the USD. The CSO continued, “tech stocks, growth, and crypto” will continue to suffer. She writes:
“After billions of capital has evaporated overnight, liquidity out of the system, we have not seen the full impact of that because most of the companies in the industry are not publicly listed so we don’t get the transparency we usually see.”
As multiple lending platforms like Celsius failed in recent times due to the liquidity crisis, Demirors highlighted on Twitter that “a massive void” now exists in the market because of the ongoing high demand for these borrowings from traditional markets. The amount of capital available for lending has been reduced by crypto lenders due to persisting industry-wide uncertainty.
Additionally, Demirors stated that rates would rise when liquidity outside of the banking system dries up due to the increasing urgency in regulating stablecoins and the general decline in liquidity in the broader market, making coin margined products a preferable option for access to leveraged positions.
For instance, it is evident in the sky-high borrowing rate associated with shorting USDT in the face of mounting doubts about the true reserve status of Tether. She writes:
“Tether FUD, as always, continues. USDC FUD is now starting too, which is indicative of where we are in the cycle. We see tradfi funds contemplating a trade called “the widowmaker” which is short USDT via borrow at 10-12%.”