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The Kobeissi Letter

Feb 25 • 11 tweets • 4 min read • Read on X

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Did liquidity in crypto just dry up?

Crypto markets have now erased -$325 BILLION of market cap since Friday morning.

At 5:00 PM ET today, crypto lost -$100 billion in 1 HOUR without any major headlines.

What is happening with crypto? Let us explain.

(a thread)

Over the last 24 hours alone, we have seen ~$150 billion liquidated from the crypto market.

Selling has broadened with just about all crypto assets falling sharply.

Even the memecoin market appears to have lost a significant portion of its liquidity.

So, what's happening?

It appears to have all began with Solana which is now down -22% since Friday.

Amid the memecoin frenzy, Solana saw extreme relative strength.

However, as memecoins began to fade, Solana also began to fade.

For a while, selling in Solana was largely isolated from Bitcoin.

However, as the S&P 500 began selling off on Friday, Bitcoin joined the downward move.

As seen below, the drop in the S&P 500 came with an acceleration of selling in Bitcoin.

Now, Bitcoin is losing its relative strength after breaking below $98,000 support today.

It's rather strange that this comes hours after Citadel made a major pivot on their crypto stance.

Today, Bloomberg announced that $65 billion Citadel Securities is looking to become a liquidity provider for Bitcoin and crypto.

Markets took this as a "sell the news" event.

It also seems that the Bybit hack on February 21st has dampened sentiment in the market.

Arkham Intelligence has declared this hack the "largest financial heist in history."

The closest competitor is the theft from the Central Bank of Iraq, which lost $1B in March 2003.

In fact, the Bybit hack more than DOUBLED the 2nd largest hack in crypto history.

PolyNetwork's $611M hack in August 2021 was previous largest crypto hack.

Weakness seen in Ethereum has also put more pressure on broader crypto markets.

Hacks deteriorate confidence.

The technical picture also appears to have lost momentum.

However, this also does not mean that crypto markets are set for a prolonged bear market.

We have seen countless -10% pullbacks in Bitcoin over the course of this bull run.

Technical pullbacks are healthy.

And, to top it all off, Sam Bankman-Fried is back on X.

Amid the crypto crash, SBF returned to state he has "a lot of sympathy for government employees."

This comes as DOGE and Elon Musk prepare for more mass layoffs in the federal government.

Lastly, as volatility returns to equity markets, risky assets like Bitcoin are pulling back.

We saw historic levels of risk appetite in 2024 and heading into 2025.

A pullback in risk appetite means less liquidity for crypto markets.

This has certainly happened before.

Overall, there really isn't one specific factor pushing crypto lower right now.

Rather, its a combination of factors which have resulted in reduced liquidity.

Crypto markets need LIQUIDITY to thrive.

Follow us @KobeissiLetter for real time analysis as this develops.

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More from @KobeissiLetter

The Kobeissi Letter

@KobeissiLetter

Feb 25

The MicroStrategy liquidation:

As MicroStrategy, $MSTR, falls over -55%, many are asking about "forced liquidation."

The company now holds $44 BILLION worth of Bitcoin, could they be forced to sell it?

Is liquidation even possible? Let us explain.

(a thread)

MicroStrategy currently holds ~499,096 Bitcoin worth a total of $43.7 billion.

Their average cost to acquire each Bitcoin is around $66,350.

So, here's a question we are getting a lot:

What happens to $MSTR if Bitcoin falls significantly below their average entry price?

Let us begin by stating that this isn't the first time liquidation is mentioned.

$MSTR has been buying Bitcoin for years and there have been MULTIPLE bear markets since then.

This includes the 2022 bear market when Bitcoin fell from ~$70K to ~$15K.

Is this time different?

Read 14 tweets

The Kobeissi Letter

@KobeissiLetter

Feb 25

Something is happening in crypto:

Since January, the number of "flash crashes" in crypto markets has risen sharply.

Crypto markets just erased -$300 BILLION in 24 hours without a single major bearish headline.

Why is this happening? Let us explain.

(a thread)

Yesterday, crypto began selling off with Bitcoin initially dropping below $95,000.

However, at between 1:45 AM ET and 2:15 AM ET, Bitcoin fell -$5,000 in 30 minutes.

A similar drop was seen beginning at 4:45 AM ET.

As seen above, Ethereum has seen even worse liquidations.

In fact, on February 2nd, we saw Ethereum fall -37% in 60 hours as trade war headlines ramped up.

However, most of the trade war headlines were priced-in prior to February 2nd.

Yet still, liquidity was drained from Ethereum at a historic pace.

Read 13 tweets

The Kobeissi Letter

@KobeissiLetter

Feb 23

What is happening here?

The US government's balance sheet now holds a massive $45.5 TRILLION in liabilities.

At the same time, the US has just $5.7 trillion in assets.

How did we end up with a $39.8 TRILLION gap between assets and liabilities?

(a thread)

Let's pretend the US government was a public company.

Typically speaking, investors are happy with a total debt to total asset ratio of ~0.3x to ~0.6x.

In other words, investors would like to see total debt levels at most around HALF of total assets.

Now, what about the US?

As of February 20th, the US government now has ~$36.2 TRILLION worth of debt.

The debt is split into 2 categories.

Total debt held by the public, as seen in the balance sheet above, is currently up to ~$28.9 trillion.

Intragovernmental debt is currently at ~$7.3 trillion.

Read 14 tweets

The Kobeissi Letter

@KobeissiLetter

Feb 22

This is insane:

Warren Buffett's Berkshire Hathaway just announced they now hold a record $334 BILLION in cash.

To put this into perspective, between Q1 2024 and Q4 2024, their cash balance rose a massive $145.2 BILLION.

What does Warren Buffett see here?

(a thread)

Below is Berkshire Hathaway's balance sheet:

They now hold $286.5 BILLION of US Treasury Bills and $44.3 billion of cash in their insurance and other business.

In their Railroad, Utilities and Energy business, they hold another ~$3.4 billion of cash.

This is unprecedented.

To put this in perspective, the US Federal Reserve currently holds $195.3 billion in US Treasury Bills.

This means that Berkshire Hathaway now holds ~$91.2 billion MORE of T-bills than the Fed.

Berkshire Hathaway's T-bill balance is ~47% HIGHER than the Fed itself.

Read 13 tweets

The Kobeissi Letter

@KobeissiLetter

Feb 20

This is truly incredible:

Gold prices are now officially up +50% over the last 14 months and made ANOTHER all time high.

In fact, gold's market cap just hit $20 TRILLION for the first time in history.

Why are people still piling into gold? Let us explain.

(a thread)

Just to explain how strong gold has been, take a look at this chart:

Since late-July, gold prices are up ~24% while the US Dollar is up ~2% and the 10-year note yield is up ~8%.

While gold and rates/USD typically have an inverse correlation, they are rising TOGETHER.

Why?

Furthermore, physical gold buying is SKYROCKETING.

Gold inventories in the 3 largest COMEX gold vaults just surged by 15 MILLION ounces in 2 months.

That's a +115% increase, putting physical gold holdings ABOVE 2020 pandemic levels.

There has been a CLEAR shift in sentiment.

Read 11 tweets

The Kobeissi Letter

@KobeissiLetter

Feb 19

The DOGE Dividend:

Elon Musk just said DOGE is considering sending $5,000 refund checks to US taxpayers.

This plan would send 79 MILLION households a total of ~$400 BILLION, which is 20% of DOGE's projected savings by 2026.

What does this mean? Let us explain.

(a thread)

For some background, it all began when an X user posted the below proposal.

The plan would redistribute ~20% of DOGE's projected $2 trillion in savings.

Only households that are NET PAYERS of Federal income tax would receive a $5,000 refund.

This is a key point in the plan.

According to Tax Policy Center data, ~40.1% of all tax filers in the US are considering non paying.

There are ~132 million households in the US as of 2024.

Only ~59.9% of households would receive the DOGE Dividend check.

This is somewhat different than pandemic stimulus.

Read 12 tweets

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