A deep dive into crypto’s deep dive

The crypto markets took a big hit over the weekend, with bitcoin losing $10,000, or more than a sixth of its value, in a matter of hours. Some blamed the sell-off on a single large sale. Others pointed to volatile crypto derivatives. Price moves can be mysterious — but they’re harder and harder to ignore as crypto grows as an asset class and touches more and more parts of the regular financial system.

This sell-off was notable not just for its size but for its speed. Reportedly, a Friday morning trade by a single large institution for $500 million worth of bitcoin may have triggered the market movement.

• Sellers dumped $1.3 billion in bitcoin as the price dropped from roughly $51,000 to $42,000.
• Crypto firm NYDIG estimated that $1.1 billion of leveraged bitcoin positions and $2.5 billion of overall crypto leveraged positions were liquidated in 24 hours — the largest such liquidation since Sept. 7.

The crypto market used to be uncorrelated with the stock market, but that’s changing. Last week, crypto seemed to follow the rest of the market down.

• Investors pulled out of growth stocks as fears of prolonged effects of the COVID-19 omicron variant rattled the market.
• Bitcoin's correlation with the stock market is increasing. The Dow Jones industrial average and bitcoin both hit all-time highs this year.
• In its early days, crypto advocates pitched bitcoin as a market hedge. The thinking around that is shifting, and the latest sharp move is a good illustration of why.

Leverage is an increasing factor in crypto. The risks of borrowing against equities to juice returns are well-known. Now crypto investors are getting a sense of the dangers.

• What goes up must come down, especially when investors need to raise cash to unwind leveraged positions.
• And DeFi protocols may be set up for automated liquidation in a downturn if collateral falls below certain thresholds, as appeared to happen on Dec. 4.

Like it or not, crypto volatility is here to stay. The big move may prompt more handwringing over the lack of crypto regulation. After 2010’s flash crash, stock exchanges put guardrails in place. While cryptocurrencies are decentralized, some of the most popular trading venues aren’t — and they could put safety measures in place. If the industry doesn’t wrestle with this problem, regulators might well move in.

— Tomio Geron (email | twitter)

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Overheard

“I see bitcoin as the world reserve asset, whereas I see the dollar as the world reserve currency. You would rather spend the currency because it is losing value, and save the asset as it’s gaining value.” —MicroStrategy CEO Michael Saylor.

“We are temporarily suspending withdrawals until further notice. We beg for your kind understanding and patience in this situation.” —BitMart founder and CEO Sheldon Xia after hackers managed to withdraw roughly $150 million in digital assets.

“The bitcoin market tends to be much more ‘thin’ on the weekends, so that probably exacerbated the decline. Once the dust had settled, the buyer came back in and it stabilized.” —Miller Tabak equity strategist Matt Maley on recent bitcoin trading volatility.

3 questions with Andrei Cherny, CEO of Aspiration

What fintech trend are you most excited about?

The rise of fintechs focused on communities — not geographic communities, but communities of shared interests, values and needs, whether it is the many fintechs focused on the particular financial needs of lower-income Americans or those addressing the specific challenges of the LGBTQ community or recent immigrants — or conscious consumers caring about sustainability, in the case of Aspiration.

What fintech trend is most troubling for you?

The promise of fintech was supposed to be about more than bringing the same kind of predatory banking practices online, and I too often see some products out there that make me think we can do better.

What was your first fintech or tech job?

This one! I co-founded Aspiration not because I was looking to do something in tech or fintech but because of the power of tech and fintech to make a positive impact at scale. We’re pioneering the category of sustainability-as-a-service and helping people and businesses embed climate change-fighting action into what they're already doing everyday in ways that make it easy, automated, engaging and yet still enormously powerful.

Need to know

Facebook Messenger is testing bill-splitting features. The messaging app will let users split payments.

Wise will add 1,000 staffers. The money-transfer company is expanding its workforce globally, particularly in marketing, engineering and customer support.

Making moves

Brian Roberts joined OpenSea. Lyft’s chief financial officer was named CFO of the NFT marketplace.

Robert Mitchell has joined Fast. The veteran PayPal executive was named as the first chief financial officer of the online checkout software company.

Christina Melas-Kyriazi is joining Bain Capital Ventures. The former Affirm executive and angel investor was named as the investment firm’s newest partner.

Brian Nelson was confirmed by the U.S. Senate. The former chief legal officer of LA28, the organizing committee for the 2028 Olympic and Paralympic Games in Los Angeles, will be the Treasury Department’s undersecretary for terrorism and financial crimes.

Barry Rodrigues is joining Finastra. The former Barclays and Citigroup executive will run the fintech company’s payments business.

Deal flow

Kueski raised $202 million in equity and debt financing. The Mexican “buy now, pay later” company’s $102 million in equity investment was led by StepStone Group. The $100 million debt financing was led by Victory Park Capital.

Endowus raised $27 million. The Singapore-based digital wealth management app’s funding round was led by Prosus Ventures and EDBI.

Mr Yum raised $65 million. The Melbourne-based mobile ordering and payments software company’s series A round was led by Tiger Global.

Goalsetter raised $15 million. The children’s financial literacy app’s series A round was led by Seae Ventures.

Hometap raised $60 million. The home equity loan software company’s funding round was led by American Family Ventures.

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Data point

> $870 billion: That’s the value of mobile money transactions in emerging markets by 2026, up from $555 billion in 2021, according to Juniper Research.