BITCOIN (BTC )IS IN freefall, with short positions piling up, crypto exchanges are now under pressure. "COinbase" the crypto platform share price has plunged. Could the collapse of Coinbase lead to a market contagion? All eyes on long positions of BTC and liquidation from margin calls. Coinbase is showing Lehman symptoms.

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Bitcoin (BTC) is now in freefall, peaking out at $48475 on the 28th March 2022 and then falling through its trading ranges May 9th at $30000 losing 75% to where the price is today at $21715.  Which is spectacular loss of value, tantamount to an all out crash.     Chart 1, shows the collapse of Bitcoin, with an overlay (yellow line) showing short interest (selling against the BTC) spiking.  Below in a separate pane is the Open Interest (light green line), which is steady, indicating the amount of assets (options) still owned by traders that are both long and short.

Crypto trading platforms have very little collateral backing them and most probably would not be bailed out by the Federal Reserve bank or receive a government backstop (but you never know) if they do go belly up.  Probably the most unregulated financial instruments and industry to date, yet they are the most precarious when rates and Foreign Exchange values increase, more so the U.S. Dollar begun going upward.  Which is what is occurring now in lieu of possibility that inflation will be chronic if  Central Banks don't contain inflation with interest rates.   As government/s worldwide push to increase wages and with a shrinking workforce from stagflation, the price pressures will be dramatic via continued supply chain shortages, with oil and food skyrocketing.  It'll just add to the cost of living woes.

Yet, crypto is never-the-less a concern for markets as greed gone wild, noting Coinbase the largest Crypo platform net worth is $21.3 billion, while holding $256 billion in user assets i.e crypto currencies on its balance sheet.   There is a familiar sounding problem here as in 2008 Lehman Brothers the investment bank that imploding and set off the 2008 financial crisis held, at the time, $680 billion in assets, with a tiny $22.5 billion used as collateral.  $680 Billion of margin and speculation of the ill fated Lehaman bank compared to the $256 billion that Coinbase manages under its exchange platform may seem small in comparison, but may, although some experts think not, lead to a broader market contagion.   

Chart 2, shows Coinbase's share plunge, from its high of $368 on  09/11/2021 to where it is now at $51.58 (June 2022 low).  The overlay is the amount of BTC longs, which are positions that are still being held, mostly on a margin (high leverage) by traders and firms, which is obviously banks that have lent into the Crypto markets.  Somewhere in that $10 billion in BTC long positions are most likely margin calls and probably a lot of them.   

All eyes BTC and Coinbase.   To which recently, Coinbase have just sacked 1,100 staff , in 2007 before the Lehman collapse, the investment bank sacked 1,200 staff.