New systemic risks in the cryptocurrency markets and how they might play out in a panic

This started as a comment i posted last night on another thread in r/Buttcoin. Thought it was better for CryptoReality so i cleaned it up slightly and tried to post it there but then I got swarmed/reported by some crypto bros chatting me to tell me "I'm a moron" and presumably reporting the post to Reddit... and the auto mod kicked in...

so I'm posting it here because this Celsius implosion is exactly the scenario that made me think there's a decent chance cryptomania won't survive the weekend. kind of too relevant to leave in mod limbo and mods don't seem to be responsive on r/CryptoReality.

For those who saw the original comment, the only major difference from my comment is just more info on Michael Saylor and MSTR.

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"New" at least compared to the 2018 crypto crash. i'm compiling some of my posts on other threads because i think we are seeing the system start to seriously wobble... and i strongly suspect it will topple eventually.

"Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one."

- Charles MacKay, Extraordinary Popular Delusions & the Madness of Crowds

1. 23% of americans own or have owned crypto already. 64% of americans have basically no assets other than their house. i suspect (but do not know for sure) that the picture is similar in europe and Japan, the other major pools of world capital. everyone i know under 30 thinks this shit is a total scam (i've been polling informally). in other words: there is no one left to pump money into the ponzi. (as an aside, i like nick weaver's formulation that crypto is a "self-assembled ponzi")
2. as people flee shitcoins they are buying bitcoin in what they perceive to be a "flight to quality" - the same reason US Treasuries and gold go up during market crashes. have a look at the shitcoin market; it's getting hammered. everything down 10-30% in 24 hours. it is reasonable to assume that a lot of the buying power that could be pushing up bitcoin is probably pouring into BTC/ETH already from the shitcoin market liquidations. the fact that even with that upward pressure on the price of BTC and ETH (AKA "quality"... lol) we are still seeing this much of a slide means that the selling pressure must be... intense. now imagine what happens when that support ends because the shitcoin capital has been totally drained out of shitcoins and into BTC/ETH (at least whatever shitcoin capital wasn't just flat out stolen by the scammers who issued the shitcoins) ... all you will be left with is the collusion of the whales trying to keep the price up. sure there will be a bunch of financial suicide bombers HODLers shouting "YOLO" as they ride the bomb all the way to the ground, but that's an insubstantial amount of capital now that they've been rekt by tesla, shitcoins, gamestop, and whatever other bad bets these market actors seem to determine to make (and with leverage!)
3. at least some of the whales rats are colluding to prop up the price. they are already obviously doing this - have you looked at a graph of the price of BTC for the last 30 days recently? i've never seen a chart so obviously flat on the bottom. while price manipulation is not exactly anything new to the crypto markets - Nasdaq reported on an analysis that claimed north of 90% of the trades reported by the exchanges are fake as recently as Dec. 2021. what is new is that there are some folks who have a lot riding on the price of BTC not hitting certain benchmarks (more on that later). sadly for the whales rats no one in the world is rich enough to prop up a $500B market in freefall. every minute this continues the whales are burning actual capital (the so-called demonic "fiat" us mere mortals use to buy our Chipotle). i've tried to build some financial models of their burn rate but given the uncertainties i don't want to claim i have a good answer... but there is definitely a burn rate, so the famous economics quote "Things that cannot go on forever, will stop" applies. as a more concrete data point, consider that on Friday the S&P was down -2.9% but BTC, a highly correlated but far more speculative asset, only moved -3.3%. someone had to absorb that selling pressure. i suspect eventually one of whales rats will look at his dwindling pile of actual fiat currency and realize that the first whale rat to the exit door gets to keep the billions and the rest will be left holding the bag. being a whale rat, he (trust me on the pronoun) will make a break for it. when that happens we will see total collapse of the price because, being whales rats, they will all turn on each other in a desperate scramble for a rapidly shrinking exit door.
4. worth mentioning that you can't put any money in an actual bank - like real, fiat money you can pay rent and buy lambos with - outside of banking hours. for instance right now, because it's the weekend, all these magic beans are trapped in the magic bean factory... and at least some corner of the bean factory is kind of on fire. a few weeks ago when i got serious about paying attention to this crypto monstrosity i was talking to a fund manager about the situation... he pointed out something i would not have thought of: if the collapse starts on the weekend it would dramatically accelerate the ascent to a state of total panic. even if it's not gonna happen this weekend, this is a systemic risk that 24/7 trading w/out the kind of circuit breakers used in NYSE/Nasdaq will continue to create.
5. Celsius has collapsed (even if they haven't admitted it yet). That's just the first domino. Beyond the current outflows, We already know at a bare minimum a) Celsius lost 35,000 ETH to a hack and b) they lied to their customers about it. Redditors are even raising the alarm in r/Bitcoin (AKA "The Church of the Financial Suicide Bomber HODLer"). The rise of crypto equivalents of the kind of financial derivatives that almost blew up the world economy in 2008 means that the cryptocurrencies are all deeply interlinked in a way they were not in 2018's crash, so Celsius collapsing will start a domino effect.the most important event in the domino run will be when a medium sized exchange closes its doors, takes the money, and runs, leaving even the people who thought they had safely exited by turning their BTC magic beans into USDT or USDC magic beans with absolutely nothing. once other crypto "investors" hear about that... panic.
6. there is a parallel situation with stETH and ETH de-pegging. w/out going into the grimy details stETH is a magic bean box that contains another magic bean called ethereum. you cannot open the magic stETH box for 1-2 years. stETH is supposed to be worth 1 ETH but... it's not. stETH looks basically like a futures contract, so it's worth what the market perceives the value of the ETH in the box will be 1-2 years from now and... stETH is currently trading at 95% of an ETH. Why? because the whales dumped all their stETH on retail bagholders in the last 72 hours. which tells you all you need to know about what some of the whales think about the future price of ETH... (as far as the morality of dumping your soon to be illiquid assets on retail suckers, see my comments about rat whales in #3). incidentally this stETH situation was one of the top 3 stories on bloomberg yesterday. literally every money manager in the world now knows about "staked eth". what a waste of brain space.
7. at some point tether will stop redemptions because tether is in the running for the largest financial fraud in the history of our great species. at that point: ka-boom. you can't blow a $60B hole in a $1.3T market and expect that market to survive... but it's even worse than that, because 70% of all crypto trades are done with tether's imaginary tetherbeans. /u/peerchemist did an excellent blow by blow writeup of how that might play out on medium so i won't go into the details, but the tl;dr is that w/out tether liquidity will vanish, and when liqudity vanishes and there are literally no buyers, prices collapse and panic sets in.
8. at some point MicroStrategies will have to hand over several billion in BTC to their bondholders, who will liquidate it. i have read several different takes on what that price point is. here's one from MSTR itself. given that Michael Saylor probably only escaped being jailed for financial fraud in the dotcom crash because 9/11 changed the priorities of regulators, you have to take his numbers with at least a grain of salt. personally i would use a whole shakerful, maybe more. Other journalists have reported trigger prices of BTC $13K and $21K. Wherever the price is, the most important part is that there is now a price at which massive liquidation will be forced by bondholders bearing contracts that enforceable in the real world. This kind of systemic risk is new to Bitcoin.