I’m seeing responses to this selloff focus on the SEC’s decision to postpone the ETF. People are saying things like “how is it possible that postponement of a decision can lead to a selloff like this? ” I can’t be the only person unsatisfied with the lack of a clear answer to that.
Part of the answer I’m providing to myself is that **there is more than one reason we are selling off right now.** I’m entertaining the possibility that the SEC decision isn’t even the most important factor in this selloff.
## If the selloff isn’t caused by the ETF decision then why did they happen at the same time?
Shit happens. Sometimes events trigger moves in markets that have been set up for a long time. The result of something like that is a systemc breakdown. Sound familiar?
Also, the selloff started July 29th, well before the decision to delay. The selloff and the SEC’s decision to delay seems to be irrationally linked by some; Sure, the selloff continued and picked up speed, but there’s no reason to believe that the market wasn’t primed to do that already.
## What else is important?
Volume is important. More specifically, where capital is flowing to and from.
We’re seeing alt hoarders sell everything (including their BTC) into tether and cashing out to fiat (look at the volume moving in and out of the Yen!!!). We’re probably losing about 100 million tether a week from the system right now. 3 weeks ago there were 2.7 billion. Today there are 2.4. That’s substantial because money that’s leaving the system through tether may not come back.
If nobody is depositing cash to buy tether then all tether can (and will?) leave the CC ecosystem. That’s 2.4 billion USD of bear pressure available… and I’m starting to believe that can sell out.
## What happens without economic incentive to create more tether?
2.7 billion less liquidity is a big hit to the total CC market cap. I’m not even sure how to estimate the impact, but it will be substantially more than a 2.4 billion USD drop in the net CC market cap.
## Consider the CC space without tether.
If alts aren’t relevant to this selloff then why are they dropping in value faster than Bitcoin? Why have they been losing market cap for months?
You’re watching the network effect of cryptos break down when tether leaves because without it you will observe deviations between exchanges that are 10% or more. We had tools to measure that kind of thing 2 years ago that don’t even exist today. Today, exchange prices are so close that there’s no reason to pay attention to it.
Arbitrage bots become more prominent in a world without tether… and a world with more arbitrage bots is a world that is much less efficient. Less efficiency means less profit and less upside potential on every trade.
To understand what I’m getting at you should [listen to this podcast](http://www.bitcoin.kn/2018/08/caitlin-long-financialization/) or [read this article on forbes](https://www.forbes.com/sites/caitlinlong/2018/08/07/racing-to-fix-wall-street-ice-cryptocurrencies-and-enterprise-blockchain/#268ab665215e).
A sort of financialization has already occured in the CC space by way of alts and tether and the market is just starting to grasp the implications of that. If tether is gone, or so scarce that it might as well be, your options to cash out in most alt markets is probably limited to Bitcoin.
**Think of the size of that squeeze.**
Similarly, if alts are less prominent in this space then there is less demand on available Bitcoin because there are fewer altcoins (which also have less value). As the alt market shrinks so does the demand for Bitcoin… but the Alt market also shrinks because everyone knows that there is more claim to bitcoin by way of altcoin market caps than there is Bitcoin to go around.
## Wow. Big claims there, Mr. Hates-All-Alts
First, I don’t hate all alts. I’m categorically opposed to shitcoins. I’m not up for discussing what qualifies as a shitcoin to me, but I will admit that much bias.
Second, the amount of disgust some people show when I suggest this possibility that alts are somewhat culpable is telling. I’m happy to discuss details that I’m missing, but I don’t think everyone is rationally engaging with the information that’s available.
When I read emotional responses, like the ones I’ve been getting in the daily discussion, I’m prone to asking questions. So, feel free to get emotional; but please be able to support your emotional response with observations, facts, and or quality arguments. Trying to discredit what I’m saying by slandering me isn’t doing anybody any favors.
**Please be patient and help me think through this with you.**