In a sign of deepening turmoil in the crypto community, Babel Finance became the second major digital-asset lender this week to freeze withdrawals, telling clients it is facing “unusual liquidity pressures” as it contends with recent market declines.
“The crypto market has seen major fluctuations, and some institutions in the industry have experienced conductive risk events,” the Asia-based lender and asset manager said in a notice on its website to explain the temporary measure.
Another day, another crypto exchange declines to allow withdrawals. Cryptocurrencies are pure liquidity plays so they are unlikely to recover until there is clear visibility on where the next outsized round of new money is going to come from.
The 10-year – 3-month version of the yield curve spread has been a clear anomaly because it rose while the 10-year – 2-year was inverted. That was driven by intense demand for short-term debt as investors fled exposure to long duration bonds. The spread is now contracting because long bonds are rallying as the risk of economic contraction is priced in.
The Dollar’s continued rally, refueled by the Yen’s slump overnight, is siphoning liquidity out of the global market.
The willingness of the Bank of Japan to persist with quantitative easing while the rest of the world is tightening is a source of liquidity. Simultaneously, the ECB is looking at how to ensure debt market stability without contravening its governing principles. In this case is it usually easier to ask for forgiveness than wait for permission. There is little doubt the ECB will act if peripheral spready become problematic.
Stock likes Coinbase, Microstrategy and Riot Blockchain are clear candidates for lengthy base formations, assuming they survive.