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It’s not often that the guy on the street looking to lure you into his underground casino is upfront about the fact that the games are all rigged, but when they are this upfront, you should take them at their word.
- Morgan Stanley enters the BTC ETF rush
- Strategy just revealed a purchase of 34,164
- Corruption runs deep
Wall Street giant Morgan Stanley (NASDAQ: MS) was late to join the BTC-backed exchange-traded fund (ETF) parade, a delay the company acknowledged by charging fees of just 0.14%, the lowest yet. This narrow margin approach resulted in their MSBT product attracting net inflows of $34 million on its first day of trading and over $100 million in its first week.
However, the list of risk factors that accompanied Morgan Stanley’s new BTC baby quickly went viral due to their ‘translation’ by investor research firm Hedgeye. The translation concluded with the observation that “one of the largest banks in the world is telling us that the underlying asset trades on manipulated venues, has unresolved legal status, and depends on infrastructure that has repeatedly failed.”
For instance, the caveat about “manipulative trading activity on digital asset trading platforms, which, in many cases, are largely unregulated or may not be complying with existing regulations” is interpreted as Morgan Stanley “openly telling us that the exchanges where the asset actually trades are MANIPULATED and non-compliant.”
Crypto token price manipulation is nothing new. You can go back nearly a decade and find documented instances of manipulation behind major surges (and the inevitable plunges) of the BTC token’s fiat price. These episodes will continue so long as there are exchanges that make a habit of either failing to notice or failing to care about wash trading on their platforms.
As if on cue, the RAVE token’s value spent the past couple of weeks improbably rising from $1 to over $25 before plunging back below $1 in the space of 24 hours. Given that RAVE went from crypto also-ran to a top-20 token in that brief span of time for no discernible reason, alarm bells should have been going off everywhere.
But while the exchanges on which this $6 billion pump-and-dump occurred have agreed to investigate, crucially, they weren’t the ones that sounded the alarm. That task was left to digital sleuth ZachXBT, who, during the token’s upward rise, warned of “blatant market manipulation by insiders … to further extract from investors.”
Following the dump, Zach suggested that exchanges “need faster intervention on manipulation.” He added that “while it’s good the exchanges responded, I find it unlikely this activity wasn’t spotted internally before I raised it publicly.” Which begs the question: would these exchanges take any corrective actions if they aren’t publicly called out first?
Fearless prediction: exchanges will engage in some performative post-mortems, industry ‘news’ sites will tsk-tsk for a week, and then return to breathlessly reporting influencers’ forecasts that it’s nothing but sunshine and lollipops ahead for this or that token. This sector needs a new acronym, something like ‘have fun staying stupid.’
BTC’s Strait of Hormuz
Another MSBT risk factor is “the failure of one or more of bitcoin strategic partnerships with one or more institutional players.” Hedgeye translates this as the BTC token’s price depending on “a small group of big institutions staying aligned. If one walks away, the whole thing wobbles.”
As if on cue, Michael Saylor’s Strategy (NASDAQ: MSTR) just reported buying another 34,164 BTC last week, bringing the company’s total holdings to 815,061 tokens (nearly 4% of the total supply). The average price of all the BTC Saylor has acquired is now slightly above the token’s current price, but it was $15,000 lower just a month ago, and it could easily return to that price (or lower) soon.
Strategy has funded its purchases through a mix of diluting existing MSTR shareholders and flogging the company’s preferred stock vehicles, like STRC, which was about as popular with investors as the Ebola virus until Strategy boosted its dividend rates into double-digit territory.
If you listen to Saylor’s invented-metrics bafflegab, the company can easily handle having to ante up billions of actual dollars every year to make these payments and honor its other debt obligations. But Strategy’s strategy assumes a constantly upward BTC price trajectory, a belief undermined by recent history, during which BTC lost half its value over a five-month period.
Saylor has spent over $11 billion buying 142,561 BTC since the year began, so God only knows how much further BTC’s price might have sunk without Strategy’s big purchases making up for all the retail investors who no longer believe the market’s ‘digital gold’ fairy tales. If, for whatever reason, Saylor stopped buying, or worse, stopped buying and started selling, the resulting downward pressure on BTC’s price would quickly achieve terminal velocity.
Rotten to its Core
According to Hedgeye, MSBT’s caveat about “interruptions in service from or closures or failures of major digital asset trading platforms” means “the platforms that set Bitcoin’s price can disappear overnight. FTX, Mt. Gox, Celsius…it’s happened before, and they flag it can happen again.”
MSBT’s concerns also extend to those related to BTC’s transaction consensus mechanism. This is an increasingly pressing issue, as the block reward miners who process BTC transactions have been abandoning their posts in droves to focus on more reliable revenue streams from serving as AI data centers.
Mining revenue has tumbled because the block reward continues to halve every four years, and we’re only two years away from the reward falling again, this time to just 1.5625 tokens. Meanwhile, the volume of transactions on the BTC network remains stubbornly low, so miners can’t supplement their falling rewards with transaction fee revenue, as Bitcoin’s creator Satoshi Nakamoto originally intended.
That brings us to another MSBT concern, “the maintenance and development of the open-source software protocol of the bitcoin blockchain.” The truth is that the ship sailed years ago when certain developers hijacked the protocol to advance their own constrained ‘digital gold’ narrative rather than allow Bitcoin to fulfill Satoshi’s vision of ‘peer-to-peer electronic cash.’
If BTC was cash, people would be using it as payment for goods and services, not artificially inflating its value to lure the rubes off the sidelines before pulling the rug out from under them. But BTC isn’t cash, and so manipulation by the few at the expense of the many is the order of the day. Institutions may have taken an interest in participating in this fleecing of the flock, but that just underscores how little has changed in the ‘crypto casino’ landscape.
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