“His debts approached three thousand dollars and, as Ponzi liked to say, his only assets were his hopes.” - Mitchell Zuckoff
Last Friday evening when I wrote Crypto Carnage Coming?, I never could have imagined the historic events of the past few days. Carnage did indeed arrive on Wednesday, seemingly out of nowhere, when Bitcoin crashed to just above $30K – a nearly 50% haircut from the previous week’s highs – only to rip back to over $40K on the same day.
The ostensible cause of the collapse was news out of China that regulators were making moves to ban cryptocurrencies, while the apparent cause of the subsequent relief rally was, at least in part, Elon Musk’s diamond hands tweet within minutes of the bottom.
I have my doubts about both. I think something much bigger could be afoot. Indulge me as I don some tin foil. I think the entire crypto space is teetering on the edge of a total collapse that might threaten the stability of the broader financial system. Hyperbolic? Perhaps. But the sky is always falling here at Doomberg. In this essay, I dig down into the remarkable rabbit hole of stablecoins.
Before we begin, consider that if I went down to my local bank and withdrew $9,900 of my own money three times in one day, I’d most likely get a call from the Treasury’s Financial Crimes Enforcement Network. Depending on how I responded to inquiries by the authorities, I could theoretically be charged with structuring, a crime that is punishable by a prison sentence of up to five years. Mind you, it’s my own money in my own bank account, but in the real-world governments pretend to care an awful lot about money laundering.