The Ultimate De-risking

Thursday November 23rd, 2023 - Issue # 56

(Any views expressed below are the personal views of the author and should not form the basis for making investment decisions, nor be construed as a recommendation or advice to engage in investment transactions.)

It’s been another one of those weeks where years have happened. Technology darlings AI and crypto each had a historic 72 hours — Sam Altman was fired and then regained the throne at OpenAI, Kraken was charged by the SEC, and Binance CEO stepped down as part of a settlement with the US.

Tuesday was one of the most volatile days in crypto I’ve ever experienced. First, news broke that Kraken was being charged by the SEC, which sent prices down across the board with alts leading the way as the SEC highlighted a number of popular tokens as securities. Then we heard a rumour, which was quickly confirmed, that Binance was to settle with the US for $4 billion. Soon after there were rumours that CZ was in talks to step down as part of the settlement. The bulls and bears were at each other’s necks until the US DOJ added to the uncertainty in a terrifying way with an announcement before the announcement of “significant cryptocurrency enforcement actions” at 3pm. When I read this, half of me was like, “It’s over man” and the other half of me — which I’ve learned to listen to over the past couple years — was like, “You’re scared? Good, buy more!” As BTC moved down, I hit the buy button a couple of times and geared up for what was hopefully just an announcement about the Binance settlement and nothing more.

Thankfully, that’s exactly what it was. Here’s the presser if you missed it:

I was quite surprised at the price action. How were the blue chips not ripping on the news? The less sophisticated crypto market was selling the news while the smart money was hoping their wires cleared before bank cutoff.

This Binance & CZ settlement is remarkably bullish, arguably the most significant event in crypto since they made the money printers go “brrr” back in 2020. I’ve considered three potential outcomes: 1. a slap on the wrist, 2. an extended period of uncertainty, or 3. a complete shutdown of Binance. In the first scenario, the strategy was to go all in, the second was neutral to bearish, and the third was nuclear. After a pretty gruelling year in limbo, the overhang of Binance is resolved, and now it’s time for the real show to start.

As you can see from the chart above, the market loves a good resolution to an existential risk.

As an aside, I met CZ in Dubai earlier this year after a desert excursion with other prominent bitcoiners. I don’t do selfies, but after a quick chat about crypto in Canada (CZ is Canadian), I had to get a pic.

Happy American Thanksgiving!