Thread by @AlamedaTrabucco

The crypto market has been very active this week -- and that makes sense, considering all that's been going on in the U.S. What's actually happening though -- and why?

A thread about efficient markets.

U.S. government has cared about crypto on and off, but last week felt like a bit of a boiling point. Gensler (SEC chair) started talking about it last week -- one of the topics he addressed was Bitcoin ETFs, and look at the GBTC premium -- hit from -6% to -12% or so on 8/3.

And BTC got hit by his comments, too. There were very plausibly other things going on, of course, but these comments -- in addition to the first the market heard of the infrastructure bill amendments -- drove the market down last week.

And then, just like we always do, we saw the markets recover some right away. Prices just ALWAYS over-react to news, regardless of what it is -- we saw it with Elon, we saw it with China, we've seen it before from U.S. news, and we saw it here.

We see this every time, partially because of our usual friend liquidations. When organic price action occurs, it triggers *some* liquidations in the same direction, amounting to (in this case) more net selling than anyone "wanted" to do, and so there's some reversion.

But we also see it, I think, because the crypto trading markets are immature and just not efficient. The big firms which would arb this stuff away in traditional finance aren't yet, and so we're able to stay in these paradigms where news is CONSISTENTLY over-bought or -sold.

(It's the same effect that lets, e.g., buying before the ETH fork be correct -- somehow, "buy right before a big event" is STILL correct, even though everyone knows about it and it "should" be arbed out.)

So, anyway, the market recovered because we collectively decided Gensler / Yellen / whoever had had too much impact. But that's not all that was going on. Different variations of the amendment were getting tossed around, some good / bad for different segments of the space.

A revised version of the amendment would "target" non-PoW chains -- and take a look at the ETH/BTC chart as that was evolving. Worth noting, of course, ETH was up a LOT after its fork, but still, this is pretty extreme under-performance.

As things were getting hammered out -- different versions of the amendment were floated (generally aiming to remove the broad definitions of the word "broker" etc. -- I won't go into details here) -- and BTC sort of ... kept going up.

(There was a brief detour over the weekend as, sort of, nothing was happening and some buying momentum died out as excitement died down a little. Gold also randomly got crushed which probably didn't help? But mostly I think excitement died a bit, as it recovered on Monday AM.)

Why? Partly the whole crypto market was reacting to the possibility of better terms in the amendment. If the newly proposed versions could get approved, that would be an awesome step toward U.S. regulatory bodies working "with us" instead of the opposite, and that's a big update.

And I think that was borne out today when the "good version" of the amendment did not go through (unanimous consent was required here, which, BTW, is insane). We saw a SHARP drop right away, which suggests this is part of what the rally was pinned on.

But let's zoom out again. If that was all that was happening ... why are we still >$45k?

I think the specifics of this amendment (which might still pass later!) matter, but not THAT much.

I'm in tune with crypto news because I have to be, and sometimes it's hard to keep perspective about what the "real world" cares about. This week? The real world cared about crypto, too.

A crypto-centric amendment has been the biggest thing going on, and it's front-page news of, like, real newspapers and websites. The Senate is taking this seriously, and now they're going to KEEP taking it seriously -- and not in an overly negative way.

I think THAT is what the market is reacting to -- the idea that we've "made it" -- and if crypto stays as relevant as it has been (critically, in ways which are not *really bad* regulatorily, but "neutral" is seeming sufficient to me), I suspect the market will continue to do so.