Crypto Whale’s $181 Million Bet on Ether Is Going Wrong, in a Big Way

This is how markets play out, and with blockchains, savvy users can watch it live as it crashes.

In recent days, cryptocurrency watchers have been captivated by two large wallets that appear to be linked, which contain $181 million worth of ether (ETH). They also have collateral on loans that are on the verge of solvency.

  • Most of the debt is on the Aave money market (152,098.98 ETH worth $166 million at time of writing, but the rest is in the compound (14,316.90 ETH worth $15.6 million).

Why does it matter: If the price of ether drops further, these debts will be paid off, triggering a wave of ether in the market, which will further reduce the price of ether.

Leading the news: Cryptocurrency winter is turning increasingly frigid, with Bitcoin dropping below the psychologically charged $20,000 level early Saturday, and ether briefly dropping below $1,000 as investors abandon digital currencies. Both have lost over 30% of their value in the last week alone.

With a whale in a dangerous position like this, traders who believe that ether will return to its previous highs long-term now have an incentive to sell. If it drops far enough, big loans like these will pay off and drive the price down even further.

  • This could be the signal to buy again, increasing your total ETH holdings for free, but only after the market’s longs suffer serious problems.
  • Meanwhile, liquidations are on the rise at decentralized finance lenders right now, with $250.6 million in liquidations taking place at Aave, Compound and MakerDAO in the last 7 days, according to Dune Analytics.
A trading account with 165,000 followers watching the precarious position of 0x493F. Screenshot: @lightcrypto (twitter)

Details: The wallets in question are 0x493F and 0x7160. For the first wallet, scroll down to Aave v2 and see the biggest loan.

  • These wallets appear to be related, because they can be seen making larger transfers of ether, from first to last, here and here, before completing collateral for compound loans.

One can naturally ask: Why not close the loans? They cannot, because the portfolios are leveraged for too long. The owner deposited ETH, borrowed stablecoins, bought more ETH and deposited to borrow more stablecoins to do it again. And so on.

  • ZoomerAnon from the team at analytics firm DeFi Uniwhales explained that you can see the wallet repeatedly taking stablecoins like USDT and USDC, sending to Binance and withdrawing thousands of ether.
  • In early January, several transactions like this could be seen using Etherscan.

Be smart: Traders leverage too long when they believe the price of an asset will increase. If that happens, they can withdraw enough to pay off their loan, withdraw their collateral, and exit the trade with more underlying assets.

Yes but: It only works if the asset price goes up.

  • These wallets were betting that ether would rise even higher in January, when it was trading above $3,300. Today is barely holding $1,000.
  • “He borrowed 96,040 ETH before borrowing any money,” ZoomerAnon told Axios via Telegram.

DeFi lenders are automated. They monitor collateral prices to ensure that each loan is properly secured. Once collateral becomes inadequate, these protocols automatically sell the underlying collateral on the open market.

  • Whenever a borrower is liquidated, they get a painful haircut. When they leverage their position, that haircut is multiplied.

By numbers: A researcher calculated that the largest position, in Aave, will be liquidated at a price of $982 ETH. Uniwhales puts its liquidation price at $870.

  • ETH would need to drop $212, nearly 20%, to trigger this lower price. That said, ETH has lost $212 in value since June 13 and nearly $900 since June 1.

The intrigue: It is speculated that these positions are owned by a major Chinese entrepreneur, but he may be operating alone, without the sophisticated risk modeling of trading firms and the ability to watch positions 24 hours a day.

  • That said, if the owner has liquid capital, he can always buy stablecoins and close some of the dead positions, avoiding liquidation.

thought bubble: This might sound like another giant disaster ahead in the cryptocurrency world, but there is another way to look at it: as a transparent marketplace, working as expected.

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