Market Update

These are uncertain times and, like you, CoinList is doing what we can to protect our community while continuing to move forward. Like many startups, we have transitioned to 100% remote. And while we’re remote, we’re continuing to stay focused on our mission to help the best crypto projects innovate and succeed. In this spirit, CoinList trading, lending, wallets, and compliance services remain fully operational and we do not anticipate any disruption. If this changes, we will let you know as soon as possible. Stay safe, everyone.

The superlatives are missing to describe the price action of these past several days. Markets abhor uncertainty, and the world has never faced more unknowns: what will the long-term economic impact of the pandemic be? Can you bail out an entire country? And if that was not daunting enough, one can reflect on the broader economic background where most sovereign yield curves were already trading in negative territory before the shock, leaving central banks around the world with very little ammunition to prop up markets. While every asset class is getting repriced according to these unique circumstances, where does crypto stand?

We received concerned emails from our lenders about the state of their loans during and after the price debacle. Turns out, we did not issue a single margin call last week for the simple reason that the vast majority of our book is made of alt-coin loans collateralized with BTC. However, some of our competitors that were specializing in the much more lucrative business of lending USD vs. crypto collateral did not fare as well. Those lending desks were issuing margin calls faster than their borrowers could answer them, triggering a wave of collateral liquidation. This added a tremendous amount of fuel to the fire. Liquidity being much higher on derivatives platforms sent perpetual swaps funding collapsing towards -1%/day and the futures curve in steep backwardation. At one point, the March futures was trading 10% under spot, a mind-boggling 180% annualized return for the reverse cash-and-carry trade:

• Borrow BTC
• Short BTC on a spot exchange (e.g. Bitstamp, Coinbase, Kraken etc.)
• Deposit the cash collected as margin to go long the March futures on a Derivatives exchange (e.g. FTX)

You are now market-neutral: wherever BTC price goes, your PnL is constant.

Market neutral, but not entirely devoid of risk: BitMEX and Deribit went down for a few hours, leaving their traders unable to fund their account with much-needed margin and exposing them to heightened liquidation risks. As the market cooled off, the backwardation steadily came in as any BTC holder could put on the reverse cash-and-carry (short spot, long futures). This had an immediate effect on lending rates, sending BTC borrowing rates in the low double digits territory and USD borrowing rates towards zero.

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