Liquidity Fears Over Bitcoin’s ‘Sustained Recovery’ From October

00:00 Speaker A

Bitcoin price has rebounded to start the year after trading in a tight range following a sell-off in the fourth quarter of last year. Forced liquidations and selling by long-term holders pushed prices down 35% from October highs. You know who hasn’t forgotten about Bitcoin, my next guest, John D’Agostino, Coinbase Head of Institutional Strategy is here. John, good to see you again. Nice to see you live in person. Appreciate it.

00:23 John D’Agostino

Always, always love to meet you.

00:25 Speaker A

So, at its simplest level, what is going on with Bitcoin? Help us understand this mini rally.

00:35 John D’Agostino

for sure Um, so, I can understand why people think this is happening all of a sudden, kind of like a New Year’s post. In reality, Bitcoin is quietly recovering from the liquidity crisis of early October.

00:53 John D’Agostino

Uh, now the liquidity crisis in cryptocurrency is a little different from other markets because unlike equities, for example, market makers, participants who um usually buy and sell and pool liquidity, they are not obligated to post bids and offers like in equity markets. So commodity markets and crypto markets are similar in that way.

01:17 John D’Agostino

So on October 10, we have a liquidity crisis, which means people panic. They fear that they are overextended on their balance sheets and that they are pulling liquidity away. They just left the market.

01:29 John D’Agostino

And when that happens, you want to reduce these violent gaps in price because people are very, very afraid of not being able to get out of their positions and they will sell at any price. Um that happened. We’ve heard of flash crashes in equity markets, right? That is equal.

01:38 Speaker A

I tried to forget them but yes.

01:39 John D’Agostino

right We do it all in the market. When this happens in markets like crypto and commodities where market makers are not forced to be in the market, they are a bit more serious. So that happened on October 10th and it was terrifying.

01:52 John D’Agostino

Here’s the good news. The good news is that you didn’t have this rapid violent unwinding. There were support levels of institutional buyers. So the retail traders got a little bit scared, um they needed to get out, but the institutional buyers laid that foundation, that foundation.

02:12 John D’Agostino

Now, uh it was reported that there was this terrible liquidity environment and for those two quarters crypto kind of fell out of the news cycle and you saw this kind of sideways movement, grinding boring price action.

02:32 John D’Agostino

For those of us who were active in the market, we were a little confused as to what was going on because you had this terrible retail feeling. You had this um, you know, crypto Twitter and just Twitter X has been very underwhelming in the asset class overall. But what we were looking at at Coinbase…

02:51 Speaker A

Peter Schiff knows how to tweet at Michael. It’s all over, it’s dead, it’s going to nothing, everything.

02:57 John D’Agostino

And and and um and that’s fine. II actually like those environments because you get to buy cheap things that people forget about. Uh, but we were paying attention to what was happening at Coinbase, well, institutions were just taking interest. So the period from October to December was probably one of the most active institutional buying periods, and there wasn’t an institution looking at Bitcoin and crypto before October 10th that suddenly shut down because of October 10th.

03:31 John D’Agostino

So, there was this great division of interest. It had huge institutional interest and terrific retail sentiment. And so what’s happening from October 10th until now is that you’re seeing a little bit of a catchup of retail sentiment recognizing that organizations are still building and still growing. Um so I think of it less as a short term spike and more as a continued recovery.