I’ll spare you the tired clichés about Bitcoin bubbles, tulips, and intrinsic value and instead endeavor to provide useful insight into the fragility of the current cryptocurrency market.

The top seven exchanges comprise nearly half of the $40BN daily volume in fee markets and 75% of the $16BN Bitcoin volume. So what? This means they comprise the vast majority of “price discovery”.

Coin Market Cap: January 2nd 2018

Only two exchanges (GDAX and Bithumb) have fiat trading pairs. The rest use USDT or “Tether” as a substitute for the dollar. So what? Read Bitfinex’ed on why that’s terrifying.

Let’s get to the numbers: ONLY 7% of the $11.9BN BTC volume in these top exchanges is with a fiat trading pair.

Coin Market Cap: January 2nd 2018

If you’re following along, you’ll see how the vast majority of “price discovery” on Bitcoin exchanges comes from Alt trading pairs and vice versa in a sort of reflexive derivative echo chamber. And people are still confounded that a Bitcoin pump can crash Alts…

This works great as long as new money is coming into the ecosystem. Pumping coins requires less and less fiat inflows as the feedback loop gives everyone increased purchasing power.

There’s a catch though, you can’t get out. I take that back. YOU can, but not the collective you, not the $685BN of “Market Cap” you.

A month ago, when the crypto market was a mere $330BN, JPM released a report that estimated, “Since 2009, a mere $6BN of net inflows have resulted in a $330BN market cap”. This is incredible bullish news SO LONG AS THERE ARE NET INFLOWS. Price sensitivity to net inflows is symmetrical, meaning that in a crash, $330BN in “value” will be fighting over $6BN in cash. *Now it’s $685BN and could be $1TN before you read this for all I know.

Keep in mind, this does not account for fake liquidity in the form of rampant Wash Trading occurring on these exchanges, which is nearly impossible to accurately quantify.

This also isn’t taking into account the fact that in a crash, you likely won’t be able to withdraw Bitcoin, Tether, Ethereum, or anything else. *See here or here or here or read the front page of the Bitfinex SubReddit for that matter.

One important note. To those screaming “BUT BITFINEX HAS USD TRADING PAIRS!”, If you think an entity without legitimate banking relationships since April 2017, without USD withdrawals, blacklisted by U.S. banks, and banned from U.S. customers, has dollars to support $1.4BN Tether AND deposits for $2.1BN in daily USD trading volume, I have a bridge in Brooklyn I’d like to sell you.

Anyone reading this can check the state of their favorite coin’s liquidity for themselves. Go to Coin Market Cap to see where the trading pairs / “price discovery” / liquidity is originating. Spoiler alert, if your coin can’t buy you food, housing, transportation, and toilet paper, you’re holding an elaborate derivative within a derivative (derivatinception?).

Remember, your ability to exit a crowded room is determined by the size of the door, not the space inside.