Delphi Digital co-founder Yan Liberman joined Brad Keoun of CoinDesk on Monday, Nov. 4, to discuss last week's crash on Deribit, a Netherlands-based cryptocurrency exchange, and Bitcoin's outlook.


(The following is an edited transcript.)

Brad Keoun: We are here with Yan Liberman. He is the co-founder of Delphi Digital, a research firm founded in August 2018 that focuses on the cryptocurrency markets. Previously, Yan was a partner at Deutsche Bank and equity research associate at Bloomberg LP. He first dipped his toes into cryptographic markets a few years ago. And he liked it so much that he decided to create his own research studio. Yan, thank you very much for being with us today. We want to start with some of the news from this market that appeared last weekend. We had some pretty serious problems with some of the biggest cryptocurrency trades. Can you tell us, from your point of view, what happened there?

Yan Liberman: Of course, there seems to have been a pricing error with the Deribit index. This lowered the price of the index by around 2,000 points to 7,200. Since all derivative contracts are priced from this index, this has caused this deluge of liquidations where, as you know, a lot of long were liquidated because the price fell. And because of this massive liquidation, they have to pay about $ 1.3 million for all those people.

BK: What about these 1.3 million dollars? It's a lot of money to pay for what seems to be a snafu. What do you think of that?

YL: Yeah that's it. And they also pay their balance on their balance sheet. No, you know, through their insurance fund. This makes it considerably more painful in this regard.

BK: And what does it say? I mean, does this show how competitive this market is for trade, or does it show the profitability of this industry?

YL: I think it's a combination of all of this. You must understand that there is a lot of value and that you report that you value your customers. And so, by giving confidence to future customers knowing that even if there is a problem, the reversals will occur. The immediate monetary cost is therefore enormous, but I think that the long-term value, and then the signal provided, are certainly worth it. And I guess, you know, they thought about it the same way.

BK: Is this something that traders really appreciate? I mean, on one side, I participated in one of these Deribit Telegram group chats and the people are very upset. But do you think it will help build customer loyalty?

YL: I think so. I mean, it's hard to judge completely on a case-by-case basis. I'm sure there are other factors, such as liquidity and execution, and those kinds of things, the rules, also dictate the direction of the clients. But I really think it adds a strong element of self-confidence, and it also proves that you know that they are doing well enough to support that. And so I think that makes sense. There is a lot of value and I'm sure their customers feel the same way.

BK: Yan, Delphi Digital and your team have just published your monthly outlook report. Many people have various predictions about the height of bitcoin. And I'm just curious to know, after the last two weeks of trading and maybe looking at some of the technical indicators, have we received any new information as to whether bitcoin prices could go down a lot?

YL: I do not think we will see a drop below this level of 7. We have never seen long term sellers, which would normally represent a certain surrender. When this starts to happen, you really need a lot of money to make up for all those sales. Thus, most of the recent price developments have been dictated by short-term holders and traders. With Bitcoin, we see that the price generates that the volume generates the price, which is a very cyclical situation. What we can not really explain is this momentary influx of demand that can come from a wide range of sources, and whenever that happens, you now have all the individual traders who have a lot of money on the key and who just watch to get the best possible entry. This is where we will start to see this really aggressive progress. And there is a decent amount of short circuit in the space just because you have a higher convexity on a short-term trade. This can often serve as fuel for short presses and you will see huge liquidations unfold in the other direction. So, I think we definitely have a background.

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