Lending Market in China: Miners Are Not Giving Up So Easily Post “Black Friday”

Lending Market in China: Miners Are Not Giving Up So Easily Post “Black Friday”

Most recently, Babel CEO Flex Wang was interviewed in Chinese on his take on the March 12th crash. Flex gave an overview of what happened to the market then, specifically with regards to the lending markets and the miners.

Here we have summarized the takeaways for our readers for a quick recap of the comments that Wang has made:

  1. With a very unique 7×24 hour global trading market without any circuit breaker, Bitcoin can recover and adjust itself very quickly in this crisis, and I am more optimistic about Bitcoin in the future.
  1. “Black Friday” is the result of highly leveraged pressure. On March 12, a large number of Bitcoin selling triggered a stampede in the crypto contract and spot market. The underlying cause is a liquidity crisis instigated by the collapse of asset prices under a double blow from crude oil and Coronavirus outbreak. So BitMEX’s paused trading has almost become like a  self-imposed “circuit breaker”.
  1. In February, we saw signs of a rapid rise in leverage in the market: 1) the inter-institutional USDT lending rate rose; 2) Bitcoin contracts basis has sharply expanded. In addition, in February, Bitcoin’s dominance continued to decline, indicating that there is high likelihood leverage played an important role in the market.
  1. At the end of February, Babel began gradually hedging some of its risks through options, giving Babel more room to scale for the main lending business.
  1. Ultimately, leverage is just a neutral tool. It is not good or evil. Leverage, if used well, can increase returns; if you don’t use it well, you’ll blow up.
  1. There is this appearance that there has been a “mine accident”, while in fact, the miners did not give in so easily. The process of getting rid of the mining machine is naturally part of upgrades and adjustments to Bitcoin’s PoW mechanism. The miners with currently low cost and electricity bills will stay.
  1. What owning Bitcoin can help avoid is not a liquidity risk, but instead, sovereign credit risk and the crisis of central bank money printing. Gold and U.S. Treasury bonds also sold off amid the liquidity crisis.
  1. If the central bank releases a new round of measures to stimulate the economy, Bitcoin will surely rise because of its small pool size and  liquidity. If that doesn’t work, the collapse of the dollar-led system of sovereign currency credit would then be better for Bitcoin.

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