Brad Keoun: We’re here today with Yan Liberman. He’s co-founder of Delphi Digital, which is a research firm founded in August 2018 focusing on cryptocurrency markets. Previously, Yan was an associate with Deutsche Bank and also an equity research associate with Bloomberg LP. He first dipped his toes into the crypto markets a few years ago. And loved it so much that he decided to start his own research shop. Yan, thank you so much for joining us today. We want to first start with some of the news in this market that came late last week. We had some pretty serious glitches on some of the bigger cryptocurrency exchanges. Can you tell us, from your perspective, what happened there?
Yan Liberman: Sure, it seems like there was a mispricing with the Deribit index. Which caused the index price to shoot down about 2000 points to 7200. And because all the derivatives contracts are priced off of that index, it caused this massive flood of liquidations where, you know, a lot of longs got liquidated because the price tanked. And so because of this massive liquidation, they have to do about $1.3 million worth of reimbursements for all those.
BK: What about that $1.3 million? That’s a lot of money to pay for what appears to just be a snafu. What do you think about that?
YL: Yeah, it is. And they’re actually also paying it off their balance sheet. Not, you know, through their insurance fund. Which makes it considerably more painful in that respect.
BK: And what does that say? I mean, does that show how competitive this market is, for the business of exchanges, or does it show how profitable this industry is?
YL: I think it’s a combination of all that. You have to realize that there’s a lot of value, and in signaling that you do value your customers. And so by giving confidence to future customers knowing that, you know, even if some kind of glitch happens, the reversals will take place. And so the immediate monetary cost is huge, but I think the long-term value and then the signal that provides certainly makes it worth it. And I’m guessing that, you know, they kind of thought about it the same way.
BK: Is that something that traders really value? I mean on the one hand I’ve been on one of these Deribit Telegram group chats and people are pretty upset. But is that something you think will help to maintain customer loyalty?
YL: I think so. I mean, it’s hard to judge completely on a case-by-case basis. I’m sure there are other factors like liquidity and just execution and things of that nature, rules, also dictate where customers go. But I definitely think it adds a a strong element of confidence, and it also proves that you know they’re doing well enough that they can support that. And so I think it definitely makes sense. There’s a lot of value, and I’m sure their customers kind of feel the same way.
BK: Now Yan, Delphi Digital and your team there have just published your monthly outlook report. A lot of people have various predictions for how high bitcoin could go. And I’m just curious, based on the past couple weeks of trading and maybe looking at some of the technical indicators, have we received any new information on whether bitcoin prices could go a lot lower?
YL: I don’t think we’ll see a dip below that low-7’s level. We haven’t really seen any long-term sellers, which would normally, you know, represent some capitulation. When that starts to happen, you really need a lot of new money to offset all that selling. So most of the recent price action has been dictated by short-term holders and traders. What we see with bitcoin is price begets volume begets price, and this is a very cyclical situation. What we can’t really account for is this momentary influx of demand that can come from a wide variety of sources, and whenever that happens, you have all the individual traders now that have a lot of cash on the sidelines and just basically looking at it to get the best entry possible. That’s where we will start to see these really, really aggressive moves up. And there are a decent amount of shorts that exists in the space just because you have higher convexity on a short trade. That can often act as fuel for short squeezes, and you’ll see huge liquidations kind of going the other way. So I think we’ve certainly bottomed.