We have seen the worst Bear market since 2014 in Crypto world when the price fell over 80 percent. The price declines today are somewhat similar to sell-off experienced back then. Several major cryptocurrencies have experienced major losses in the figures of 80 to 90 percent. The signs of recovery are still appearing, but did anyone ask- what happened?
It is impossible to pinpoint the exact reason, of course, there are several other factors in play for the market scenario. But one of them is rehypothecation.
What is Rehypothecation?
This question must be coming in your mind, and how did it get into cryptocurrency market.
Rehypothecation is a practice by brokerage firms of using assets that have been posted as collateral by the clients for their own expenses with a promise of other short-term perks that are offered to clients. In simple terms, considering the stock market. If you have 100 shares of Amazon and you are thinking of buying few more shares of the same company, you can keep your existing shares as collateral for buying the new shares and the brokerage firms can use the collateral shares to cover its own financial obligations.
The investment products sold on Wall Street (Stocks, Bonds, derivatives, currencies, and commodities), rehypothecation is involved in the Wall Street community for decades. Traders have understood the fact that this is in fact embedded into these investment products and has learned to deal with it.
This may sound wrong, but you’d be surprised to know that this is legal in the stock market, but affects the market in many different ways such as suppressing prices and temporarily creating an artificial supply of security.
Who was Responsible for Bitcoin High in 2017?
Rehypothecation can surely be one of the many factors for this. It is interesting to know or it can just be a coincidence that CME launched Bitcoin Futures on the same day when Bitcoin was at an all-time high. After the launch, the graph indicates valleys of a price drop.
It would be foolish to say that CME was responsible for creating an all-time high for cryptocurrency in 2017.
Majority of Exchanges in Cryptocurrency market and stock market get into rehypothecation. The collateral is used by these exchanges and mostly dumped into the market, as a result, the market shrinks in terms of prices.
CryptX Financial will Play an Important Role in preventing Rehypothecation.
CryptX Financial offers several features which are not found in traditional exchanges. The first is the fact that CryptX Financial offers zero fee trading with the CRYPTX token. Which amplifies the profitability of the user.
CryptX Financial is about to be transferred onto its own native blockchain called ANVIL (Asynchronous Natively Verified Intertrade Ledger) which provides extreme transparency to the users. Even if the user wants to get involved in rehypothecation, the world would know where that collateral is being used. The Platform is built for the user, Controlled by the user and owned by the user. CryptX Financial has no control over the mutability of the platform, in other words, when the collateral is being held into custody, it can only be used by CryptX Financial after paying in CryptX tokens. These transactions are therefore recorded into the hyper ledger and made extremely transparent to the public which means you can see what is happening with your assets along which the whole world.
These factors will send a very strong message to the Crypto Industry. Thus it has no intention of suppressing the price and creating an artificial supply.