This weekend’s upward market movements could have come from a variety of driving forces.
This episode is sponsored by NYDIG.
Crypto’s green weekend was the biggest surge in recent months. On this episode of “The Breakdown,” NLW analyzes the various forces behind the success, including:
- An Amazon job posting and token rumor
- Viral tweets from a teenager and an astrologer
- Market structure explanations
The first piece of news from Amazon was in the form of a “Digital Currency and Blockchain Lead” job posting. Next, a self-proclaimed Amazon insider told London-based newspaper City A.M. the job requisition was part of a larger Amazon-crypto strategy, even hinting at the possibility of a token. How legitimate is this “insider”?
Two viral tweets, one from TikTok influencer Teen Executive and another from astrology and bitcoin enthusiast Maren Altman, seemed to point to this weekend as the time for upward volatility. Could these two tweets have sparked market movement?
Though prices are undeniably impacted by narratives, market structure is often the underlying and logical explanation. In this weekend’s case, a short squeeze could be the simplest answer. Were unwinding short positions the driving factor behind price?
See also: Using History as a Weapon: The Latest Political Attack on Stablecoins
”The Breakdown” is written, produced by and features NLW, with editing by Adam B. Levine/Adrian Blust and additional production support by Eleanor Pahl. Adam B. Levine is our executive producer and our theme music is “Countdown” by Neon Beach. The music you heard today behind our sponsor is “Razor Red” by Sam Barsh. Image credit: Alex Wong/Getty Images News, modified by CoinDesk.
Transcript
What's going on guys, it is Monday, July 26, and welcome to a Green Monday. Bitcoin had an absolutely ripping weekend moving from the $32,000 we saw entering the weekend all the way up to $39,000. As I record, it's off just a little from that at around $38,500 or so, but still up about 12% in the last 24 hours. Basically everything besides Bitcoin is up as well. So, the question of today's show is, of course, what's behind the surge? Now, usually price action, I don't think would be worth an entire show. However, in today's context, I think it is for a couple reasons. First, is that it actually reveals or at least says a lot about some of the ways that different forces interact with one another to create price action in crypto markets that I think is a good reminder, especially as we get locked into one narrative explanation or another. The second reason is that it's been kind of bleak for a little while so, let us enjoy our one day of face-ripping volatility to the upside discussion. Okay? All right. So, four possible answers I've seen on crypto Twitter about why bitcoin is having its biggest surge in a couple months. The four possible answers I've seen are an Amazon buy rumor, a teenage soothsayer, astrology and a short squeeze. So, let's go through these.
Amazon buy rumor. This is sort of a weird combination of a real thing and a rumor. The real thing happened at the end of last week, Amazon posted a job listing on its job site for a digital currency and blockchain product lead quote, "You will leverage your domain expertise in blockchain, distributed ledger, central bank digital currencies and cryptocurrency to develop the case for the capabilities which should be developed drive overall vision and product strategy and gain leadership buy in and investment for new capabilities. An Amazon spokesperson also followed up with CoinDesk saying, quote, "We're inspired by the innovation happening in the cryptocurrency space and are exploring what this could look like on Amazon. We believe the future will be built on new technologies that enable modern , fast and inexpensive payments, and hope to bring that future to Amazon customers as soon as possible." So, this is cool, but sort of to be expected. Right? It would be strange if a company that interacts with commerce as much as Amazon does wasn't at least messing around with crypto a little bit.
However, that's not really the thing that people are talking about. The rumor came over the weekend and was supercharged early today. Basically, it started bubbling that insiders with knowledge were saying that Amazon was working on a much bigger Bitcoin and crypto strategy. This morning, a London based newspaper called City A.M published a piece titled "Amazon Definitely Lining Up Bitcoin Payments and Token, Confirms Insider."
So, here's some specific quotes from that insider: "This isn't just going through the motions to set up cryptocurrency payment solutions at some point in the future. This is a full-on, well-discussed integral part of the future mechanism of how Amazon will work. It begins with Bitcoin, this is the first key stage of this crypto project and the directive is coming from the very top: Jeff Bezos himself. This entire project is pretty much ready to roll. After a year of experience in cryptocurrency as way of making payments for goods, it is looking increasingly possible that we're headed towards tokenization, then this becomes a multilevel infrastructure where you can pay for goods and services or earn tokens in the loyalty scheme. There's little more to it for now, but you can guarantee the Bitcoin plan will be monitored closely as opportunities with Amazon's own version of a crypto will be explored."
Okay, so what to think of this? Well, first of all, let's talk about my skeptical side. Alex Alex Krüger super sums it up when he says: "City A.M. is the kind of newspaper you only read while on the tube or subway if your phone's battery is dead. Why would an anonymous Amazon insider talk to them?" And that absolutely was my first thought too is, why would this story get broken in this specific place? Now, it's theoretically possible that the insider is someone who just happens to know someone at City A.M. but it still strikes me as really weird. Stephan Livera writes: "Amazon Bitcoin story remains hopium until we get something more credible here. All I'm seeing is repost for engagement." CryptoCobain tweets: "LMAO just convinced the stupid crypto journalist that I was an Amazon executive insider and made up loads of s**t."
All that said, I would be shocked if Amazon wasn't deep, like years deep, into a crypto strategy. Payment rails are sort of obvious, although I'm not convinced that the conclusion they would come to around a crypto strategy was that they had to accept crypto as payment or at least that that would be the flagship of their plan. If they did do that, my guess is it would be a strategic integration to Amazon pay as another way to help spread that tool. Their payment processing tool that is competing with the likes of PayPal and Google Pay to be the way that consumers pay for the things that they buy via their phones and computers. I also think that a loyalty type token, think an exchange token but for a marketplace, is something Amazon would be extremely interested in. Amazon's M.O. is to replace brands that people know with their own versions of them as they learn what people like, they've done it for a ton of categories already on their marketplace, why not try to do the same thing with money itself? So, my TLDR is the rumor doesn't seem strange to me. But the source is super sus. And when it comes to the market, maybe it was a catalyst and maybe it's helping provide some momentum. But I don't really think it's what's underlying this rally. For that we have to look to other forces.
What are some of the others that are being presented on Twitter? There is the Teen Executive effect. So, this is a kid who got prominent on TikTok talking about stocks and crypto but, then TikTok banned influencers from shilling crypto is something we discussed last week. So, Teen Executive had to come slum it with us over on Twitter and last Thursday, he was on Up Only with Ledger Status and Crypto Cobain. And then, on Saturday, he had this viral tweet, quote, "I have a strong feeling that Bitcoin is going back to $40k, $50k, $60k real soon. Doesn't really matter to me though, because I'm never selling." Crypto Cobain jokingly tweeted a screenshot of that tweet of the chart ripping to $39,000 not one day later, and of Morpheus from the matrix saying he is the chosen one. It will surprise you not at all that I also do not believe that this is the reason that Bitcoin surged.
So, no on Amazon rumor, no on Teen Executive, how about astrology? Maren Altma is a professional astrologer who has been all up in crypto land and on January 22, she tweeted "BTC May 16 and July 25. Take note." She then followed that up with "Confident enough to consider pinning it." So what's the verdict on this prediction? Well, May 16, had some big moves, and in retrospect, was pretty smack in the middle of the overall big leg down from about $55,000 to $35,000. So that seems decently correct. July 25 though, whoo boy, this was a very specific day of big action and you cannot deny that she called it. That tweet has subsequently gone uber-viral, like 1500 people at last glance had quote, tweeted it with various strands of "Holy crap. This is an absolute wizard." By the way, I had a journalist from the Washington Post reach out a few weeks ago to talk about Bitcoin astrology. I politely declined, but apparently there's more interest in this than one might think. Alas, I do not think that the alignment of planets and stars was the cause of this particular move either. So, it's not Amazon rumors. It's not Teen Executive and it's not cosmic destiny.
What is behind this Bitcoin search? Market structure, fam. For weeks I've been watching numerous analysts suggest that a short squeeze is coming. And now it seems like it has. So what is a short squeeze? Well, shorts are a bet on the price of an asset to decrease. As Investopedia simply puts it, quote, "Short sellers borrow shares of an asset that they believe will drop in price in order to buy them after they fall." A key piece of this is that that means that short sellers exit their positions with buy orders. So the short sellers are betting the price goes down. But what happens if it does the opposite and starts to go up? Well, short sellers can either keep their positions open at the risk of increasingly big losses, or they can exit for whatever they believe is a more moderate loss. Now, because they exit by buying, unwinding those short positions can actually drive the price higher, they become forced buyers. Similar to how liquidations on the way down create forced sellers to cover margin calls, shorters buying the underlying to exit their shorts on the way up are forced buyers. When those buys happen, it drives up the price further causing a new set of shorts to also become forced buyers and thus you have the squeeze. In total, about $900 million worth of crypto short positions were liquidated over about a 12 hour period yesterday. And that period saw 12% price jump, most of those liquidations were also particularly concentrated in a smaller four-hour period.
I noticed people talking about this for a week or more. On July 20, Sam Trabucco from Alameda Research, or as they're calling him on Twitter now Sam Tabasco from Alabama Research, he tweeted, so everything is pointing weakly in the direction of wanting to get longer here, futures premium are low too, and open interest have shifted in a way where, if there is a recovery, it could definitely trigger liquidation driven momentum. Admittedly we're not that close to this and all these led to led to doing what we do best, buying a lot more over the past day or so. This isn't quite sell us all you want below $30k in golf territory, but we're continuing to buy down here because it really just seems like too much points that way." So this is on the 20th and he's seeing on the horizon this sort of short squeeze potential and all of these factors lining up for the markets to get longer. Will Clemente who collaborates with Pomp wrote a post on Friday called explicitly "Is a Short Squeeze Upon Us?" He wrote: "Another non-chain indicator that I have my eye on closely is the perpetual funding rate. This is the mechanism that pegs the perp contract to the index weighted average price of all major exchanges, when funding is positive, longs are paying shorts to keep their positions open, when negative vice versa. As a rule of thumb, prolonged positive funding equals bearish and prolonged negative funding rates equal bullish. We've seen mostly negative rates since late May and the last time we've had prolonged negative funding like this was following the COVID crash. Funding being negative means twofold. One, sentiment from traders is bearish and two, spot bitcoin is being bought more aggressively than futures. Seeing funding stay negative throughout this pump over the last 24 hours shows we could potentially be setting up for a short squeeze."
Also on Friday, CoinDesk published "Market Wrap: Bitcoin Analysts Expect a Short Squeeze. Bitcoin sellers are expected to cover positions which could lead to higher prices next week." And on that same day, Willy Woo tweeted "Nine more hours from daily close, if price holds these levels, RSI breakout will confirm. RSI leads price breaks with quite high reliability. Meanwhile, on-chain fundamentals, supply shock is in play and only getting stronger: a short squeeze setup." And so, when it was all said and done, like I said, $900 million of liquidations and Alex Krüger tweets: "Picture perfect short squeeze on Bitcoin. This belongs in a textbook." So, it's okay if this is a little bit more abstract or not the normal terms you think in. The key takeaway that I'm trying to point out here is that we so often want to look to narrative explanations for things that are really more about short term market structure.
Now of course, taking an aggregate, the reality of crypto markets is a constant give and take between narrative and exogenous factors that we turn to our narrative machines and market structure. They don't exist without one another. They're totally interdependent in terms of how they exert their forces on the crypto sphere. But to put it differently in this specific context, Amazon rumors may have been part of the catalyst for this move, but the market wanted to make this move and it's likely that if those rumors hadn't come out, we would have pointed to something else as the trigger, some other news from the last weekend. But then again, when all is said and done if you want to go with the astrology explanation, because it's simpler, who am I to judge? Alright guys, there is a lot more to discuss this week. Voluntary reductions and leverage from exchanges, questions about how decentralized DeFi really is, tons and tons of stuff to explore. And I'm so glad to be doing it with you until tomorrow guys, be safe and take care of each other. Peace!