Six Years Later: If Soros Wanted to Destroy Bitcoin, How Would He Do It?

Rhythm Note: This article was first published on January 17, 2020, six years have passed. The current situation is that Kevin Warsh, the highly likely incoming hawkish Federal Reserve Chairman, has become the target of criticism. The market attributed the epic plunge in gold and silver prices to this Trump-appointed candidate, while other markets are pricing in uncertainty. Simply put, there are currently no assets on Earth that are rising.

While looking up information on Kevin Warsh, it was found that he is a disciple of Stanley Druckenmiller, having worked as a partner in Druckenmiller's family office with an excellent relationship. This Druckenmiller is the most famous disciple of Soros, orchestrating the "Black Wednesday" event in 1992.

Of course, this precious metals and Bitcoin crash is not Soros's doing, but it reminds us of the article Rhythm wrote in January 2020, "What If Soros Wanted to Destroy Bitcoin, How Would He Do It?" The background of this article was when Bitcoin returned above $10,000, the market was optimistic about Bitcoin's upcoming halving, envisioning a historical high for Bitcoin above $20,000.

Looking back at this article now, it is found that many of the fantasies in the article from six years ago have come true: Bitcoin has reached $100,000, interstellar currency has begun to be mentioned, most of the Bitcoin mining power has moved to the United States, and encrypted banks have virtually disappeared, and so on.

At that time, the original intention of this article was to caution everyone not to be overly optimistic. Now, we are republishing this article from six years ago. After all, a Soros disciple has taken the stage, and Bitcoin has become a multi-trillion-dollar commodity. Even a mega-market cap commodity like silver can be halved in two days; the likelihood of Bitcoin suffering the same fate is even greater. We have Skin in the game, but we must always respect the market. The following is the original content:

All good things come to an end, and it has been ten years.

No one has ever seriously considered what a true collapse of Bitcoin would look like one day. The bulls who hold high the flag of perpetual bull markets naturally have never thought about it, and the bears who mindlessly chant pessimism have not thought deeply about it either.

The purpose of BlockBeats' Rhythm article is by no means to simply be bullish or bearish on Bitcoin, but to discuss an interesting and serious topic: what crises will Bitcoin inevitably encounter in the seemingly bright future? Since many financial forces are bearish on Bitcoin, why haven't they aggressively shorted it? If one day, the Soroses really enter the market, how will they operate?

Let us imagine a scenario that may occur 4N years from now.

At this time, Bitcoin's price hovers around $50,000, and its market capitalization has finally reached the trillion-dollar threshold.

The market's understanding of Bitcoin has almost assimilated it as digital gold, a store of value. Some third-world countries have announced Bitcoin as an asset reserve, Musk's rockets are on the assembly line, and the slogans of Bitcoin supporters have even greater penetration—Bitcoin is the foreign exchange reserve of the new century, it is the interstellar currency of the 22nd century.

Those who used to criticize Bitcoin—whether they were rational investors or impulsive bystanders—have been ridiculed by every hodler as "people who don't understand the times."

What times? The era of Western economic downturn requiring asset hedging, the era of rampant inflation in some countries requiring a store of value, the era of geopolitical tension requiring safe havens, and the era where buying in means making money.

It seemed like everything had been conclusively decided, with no room for any turnaround.

In times of prosperity, dangers lurk.

Miners are happy, everyone is using advanced machines and financial tools, leisurely calculating their daily and monthly earnings, skillfully using futures contracts for hedging. Some of them have also accumulated some Bitcoin, hoping for the day when Bitcoin will reach $1 million.

Investors are also happy; never before has there been an asset that could grow so rapidly and sustainably. During this time, Bitcoin's financial derivatives market also developed rapidly, with many speculators greedily enjoying the thrill of volatility through highly leveraged futures and options trading. No other asset class could provide such a significant opportunity.

The happiest are those upstream in the industry chain controlling the money. Some rely on the day traders' scalping to earn millions of dollars a day, while others take advantage of the industry's growing demand for leverage. The Bitcoin market at this time has matured significantly compared to mining and trading in 2020, with an increasing number of structured products becoming the preferred entry for the general public.

The allure of money has captivated everyone, and no one cares that industry data is heading towards the abyss. After all, the bears are all fools; at least they didn't make any money, right?

At that time, miners borrowing to mine and installment purchasing of mining machines had become the norm, and those who paid in full were considered fools who did not utilize leverage.

At this point, the global Bitcoin mining industry's overall debt ratio has exceeded 70%. This means that a large number of miners are borrowing money to mine with leverage, as long as the borrowing rate is lower than the coin mining yield, it is a profitable business.

Soros came, the international sniper with hot money came.

Soros first bought billions of dollars worth of Bitcoin in the spot market. It was not only Soros who entered; many more Soros-like figures also entered. They were Soros's hot money allies internationally, with various types of investment funds supporting the bullish actions. At that time, it was just in line with the nth Bitcoin halving speculation wave and formed the most surging buying frenzy during the speculative market at that time. Blockchain investment institutions and the media cheered: The regular army has arrived! Let us embrace the Bitcoin era!

After establishing positions in the spot market and as market sentiment further escalated, Soros began to increase his long positions in Bitcoin's near-month futures.

Following a long bullish candle, the bulls in the derivatives market rushed in like a mighty army, and the market's bears became fewer and fewer. It seemed that the only thing that could stop the bulls was the bulls' own liquidation orders.

With significant paper profits, Soros secretly instructed his assistant to execute an operation—buying far out-of-the-money put options on futures.

At that time, options trading had become as popular and mature as coin-to-coin trading in 2020, with significantly increased liquidity levels, making Soros's position-building process seem effortless.

No one thought Bitcoin would once again drop below $20,000 at that time, as Bitcoin had always been on a spiral upward. Moreover, now Bitcoin had already surged to nearly $100,000 due to Soros's spot buying, and option sellers joyfully issued put options with a $20,000 exercise price, calculating how much premium would flow in risk-free next year.

Little did they know, the buyers of these far out-of-the-money put options were on the opposite side of Soros, and options were the necessary path for Soros's hunt this time. When you stare into the abyss, the abyss is also staring back at you.

After Bitcoin officially broke through $100,000, Twitter exploded.

Macaccaccaccaccaccaccaccaccaccaccaccmemberofbabababababababababababababababababababababababababababababababababababababababab KEYWORDSASAFASUREAFAAUREAFAAFUREAFAAFUREAAFEAACUREAACFUREAACFUREACUREAFAFEAACAFEAFUREAAAFAAFAFUREAAAFAFAAFUERAAncvfeafurea fake like a fake million million million million million million million million million million million million million million million million million million million million million million million million million million million million million million million million million million million according to his true thoughts. Musk says whether Bitcoin is a safe word is no longer important. What's important is that space travel will only support Bitcoin payments. Well-known trader Little K tells his story of getting rich overnight by going long on Bitcoin on a trading forum, while miner Little B sees the rising price of mining machines and has to increase leverage—keep going!

At this point, Soros is ready to act. He secretly arranges for his assistant to start shorting Bitcoin futures in the far months. Due to the strong bullish trend in the market, the first batch of short positions quickly come together. Soros does not continue to short, but stops to observe the situation.

To replicate the drama of shorting the pound and the baht, Soros knows this is far from enough.

At that time, 80% of Bitcoin miners had already moved to Country M, with most of M Country's hash power concentrated in State N. Soros contacted local officials in State N, outlining his thoughts on Bitcoin's overheated valuation, the mining leverage trend becoming abnormal, his desire to short Bitcoin, and indicating that this time he had enlisted the support of the well-known international fund, P. The strategy was almost foolproof. If the other party could provide "help on the news front," Soros was willing to offer a 10% profit share after success.

To get precise data on the circulating supply and proportion of Bitcoin in the market, after analyzing the data precisely exported from the block explorer, Soros knew he had to take down the trading platform, the black box. He found the head of the largest exchange platform, H, in Country M at the time. Soros told him that collecting ten years' worth of trading fees is not as good as doing business with me. Moreover, well-known fund P and State N local officials have already joined the short alliance. He said that by only knowing the futures long position liquidation price and the remaining margin account balance of H, he could achieve precise strikes with less capital. He promised that after the success, all the saved capital costs would be given to the head of the H platform.

Soros understood that the market was already a precarious high-rise building, and he would be the one to light the fire, but he still needed more institutions to add fuel to the fire.

So, he started contacting the aforementioned well-known international fund, P, explaining in detail his logic for shorting: the mining industry is equivalent to Bitcoin's primary market, and now Bitcoin mining is in great disorder, which is a sign of decline. Lending companies are no longer diligently checking customer credit ratings as before, but are lending recklessly to make money faster. Many miners have obtained loans and bought more mining machines, trying to get more loans with these machines. Data shows that the entire mining industry's debt ratio has far exceeded 70%. Some keen cloud mining companies have begun selling mining power for the next 100 years.

Meanwhile, retail investors' demand for safe-haven assets has led to Bitcoin price insurance products. Cryptocurrency financial companies are no longer as risk-averse as they used to be, but are accustomed to being mere options market sellers, happily collecting one rental payment after another.

Soros smiled slyly, as if he saw his prey about to be caught, and continued: You should know that Bitcoin's mining cost is $85,000, and the current price is $110,000. Now is also the halving point in time. The miners' block reward earnings will plummet. As long as we can smash the price below $70,000, we will definitely trigger a death spiral for high-leverage mining. The longs in the market now will become the most splendid fuel for us. Their chain liquidation will leave the option sellers at a loss. And, shorting Bitcoin is the politically correct thing to do in this world. Whether it's the stock market or commodities, there may be unforeseen circumstances obstructing our plans, but Bitcoin, where the capital game is played near the extreme, is the best slaughterhouse.

Seeing some hesitation on the other side, Soros added: To ensure that nothing goes wrong, I have already won over the State N local officials, the head of the H platform. Whether it's on the news or the data front, we have no room for error. I have already laid out these position strategies, just waiting for your participation. The head of fund P nodded.

The curtain rises.

On December 24, (2020+4N), Soros decided to launch a heavy blow on Christmas Eve when everyone was off guard.

That night, Soros suddenly made multiple large-scale sell-offs of billions of dollars in Bitcoin short positions on the Far Moon contract, causing Bitcoin to plummet from a high of $120,000. With access to H's position data, Soros executed precise trades at each price point, ultimately triggering a cascade of long liquidations that dropped the price to around $95,000.

The following day, as some brave spot buyers rushed in, Soros began to massively sell off the billions of dollars worth of spot Bitcoin he had purchased earlier. The crypto community stayed awake on Christmas Eve, and investment institutions and the media flocked to write articles about Soros selling Bitcoin and allegedly shorting the market.

On December 26, bearish sentiment started to spread in the market. A well-known international hedge fund, P, increased its short positions, leading to panic in the market. Soros immediately contacted local officials in State N of Country M, who promptly issued a notice in State N regarding the investigation of illegal Bitcoin electricity usage and the "State N Initiative to Boycott Bitcoin Speculation," urging the M Congress to address the unreasonable speculation and energy waste in Bitcoin mining. Bitcoin unsurprisingly plummeted to $75,000.

On December 27, Soros's original Bitcoin futures long positions were physically settled, and he once again acquired billions of dollars worth of spot Bitcoin at a price of $75 per coin.

On December 28, Soros liquidated the spot Bitcoin obtained from the settlement, sending the market into an abyss. "Bitcoin Ponzi Scheme" and "Blockchain Scam" became trending keywords on Twitter.

McCoffee tweeted again, stating that his $500,000 prediction was obviously a joke and shouldn't be taken seriously. Musk also remarked that due to the extreme price volatility, Bitcoin was no longer suitable as a currency for interstellar travel. Renowned trader Little K left a message on the forum saying, "Goodbye!" and was never seen again. As for miner Little B? No one knows where he went. Bitcoin had already plunged below $40,000, mining machine prices were plummeting, and as mining became unprofitable and he couldn't repay his high loans, he had no choice but to disappear to protect his wife and children.

On December 29, known as Bitcoin's Black Friday in history, with the successive defeat of the longs and the domino effect of the industry collapsing, the price of Bitcoin had plummeted below the $20,000 mark. The crypto world's largest "bank," Q, declared bankruptcy, unable to repay user funds and related policies; while the largest mining machine manufacturer in Country M, S, announced the permanent suspension of mining operations and a pivot to developing chips for space travel machines.

Amidst the market wailing, Soros's early purchased out-of-the-money put options began to be in-the-money, and that night he made $500 billion in profit.

This story could never have happened because...

I believe many readers, after reading the above BlockBeats story, will have this initial reaction.

Indeed, the above story has been exaggerated in its description, but it must be acknowledged that all of this is logically sound at a macro level—or rather, the objective conditions may not be present now, but this doesn't mean they won't be in the future.

The reason Soros and others are not operating in this way now is twofold: first, Bitcoin's circulating supply is not large enough to satisfy the whales' appetite, and second, Bitcoin's mining leverage ratio is not high enough, and the options and other derivatives markets still lack liquidity. The current top companies in the crypto world still have bottom lines and original intentions, but if they lose these precious things in the rapid development of the future, the consequences will unfold into the story above.

What BlockBeats truly wants to convey in this article is by no means pessimism or bearishness but rather hopes to inspire and warn the industry.