Why Celsius and 3AC going under should cause you to worry

1/x

2/x - First of all, why should you listen to a cartoon animal working in mcd?

I called the celsius collapse
https://twitter.com/hodlKRYPTONITE/status/1535536331732185089

As well as 3AC (in private - for those who i talk to)

This is not dancing on graves. I just dont want retail to get further liquidated.

3/x - First of all, 3AC collapse is monumental. This is because they borrow from EVERY SINGLE MAJOR lender. Think BlockFi, Genesis, Nexo, Celsius.

Expect every lender to take on hits from 3AC

4/x - The last public number for 3AC's assets was tagged as 18bn. I strongly suspect their real NAV to be much lower then. There were rumors of them pledging their deribit stake even though they had already disposed of it economically.

5/x - But lets use 18bn. Assume that 9bn of it is mtm VC portfolio. 9bn of it liquid. Assume that all of it was in the safest BTC - (yes i know they have alt L1s which died terribly) - From Nov 21 till now, their liquid pf would have drawn down by close to 70%

6/x - Their liquid pf would be worth 2.7bn at best. If you add the shit coin exposure, realistically their liquid pf would have drawn down to 1bn or less. Which matches the reports on the street that they are unable to meet their margin calls.

7/x - Not being able to meet a margin call is the death knell for any hedge fund. Crypto or tradfi. There are reports of them trying to use Starkware equity as collateral. Well, i guess you can call it StuckWare.

8/x - 3AC is one of the biggest borrowers/clients for the lenders globally. Their collapse would transfer the economic risk to their lenders. The lenders will bear the pnl difference between how much they are owed versus what they get in liquidating their collateral

9/x - These lenders are ill-prepared. They operate a 10/20bn balance sheet with about 5% of equity buffer. That means that defaults will cause SIGNIFICANT EQUITY erosion.

10/x - Not all lenders are made equal. Celsius is the worst. It has gone under. Nexo i dont know. BlockFi is pretty bad as well (afterall how do you lose money in a bull mkt?) Genesis is probably the cleanest sheet in the room

11/x - What this means is that lenders will protect themselves by withdrawing credit from the system. All the lenders probably have about 50bn (estimated) in loan creation...i expect 30-40bn of credit to be destroyed. i.e loans to be recalled and credit to be shrunk

12/x basic math. When credit leaves the system, there is less money overall. Less money for the same amount of coins. coin price down.

13/x - for the more sophisticated ones. When credit is removed, the overall balance sheet of every single player shrinks because risk assets are marked down. Market makers are less able to provide liquidity.

14/x - bid ask spreads widens, for funds - with increased volatility, they need to delever their risk exposures to maintain the same amt of VaR. Also, LPs will get scared by UST and now Celsius? Best to prepare for redemptions and sell ahead

15/x - In essence, the collapse of a major fund and a major lender will shrink overall credit in the system and lead to continued deleveraging. So far we have had a orderly liquidation but more people need to delever still.

16/x - Price wise, honestly i have no idea. We probably need the big casino owners to step in. After all if all your clients die, you'll need to wait for more clients to come in again for your business to work out.

17/x - However, if nobody steps in. We might see prices going below 10k. After all, we have had the perfect storm for a run up (QE etc) now we have the perfect storm for major deleveraging across all financial assets (rate hikes, QT, inflation)

18/x - Finally, if you found this thread useful, please retweet it so that people are properly aware of the big mess we are actually in. This is not the time to bid because of a squiggly line. As much as i like curves.

19/x - Also - If you are wondering why BTC and ETH are the first to be sold off, its because in a crisis, you sell what you can. Not what you want. There is no liquidity for shitcoins/ "alts"/ dreams

20/x - read this https://twitter.com/hodlKRYPTONITE/status/1536609042952757249