Carol Alexander

This talk describes the operational, market and credit risks created by excessive leveraging in crypto markets. An extraordinary level of rehypothecation decentralized finance (DeFi) blockchain protocols creates extreme levels of credit risk that could threaten the entire future of DeFi. Such credit events have often spilled over to the unregulated centralised exchanges that list products called perpetual futures, which dominate price discovery. These exchanges are operated by companies that perform their own brokerage, custody, clearing, market making and many other functions that traditional financial market regulations forbid. Some  also list toxic, excessively pro-cyclical leveraged spot products whose market-making heavily influences volatility in the prices of perpetuals. Then, the exchange's automatic clearing mechanisms inflate volatility even further. The only winners here are informed professional traders, mostly operating in New York time zones, who regularly manipulate the price of bitcoin during the early hours (especially on Sunday). To avoid toxic flow (trading against each other) the price of bitcoin is periodically inflated to attract more uniformed traders. They are permitted to leverage their positions a hundred times or more. But there are no margin calls. And so, if they are to avoid automatic liquidation or even bankruptcy, these traders must monitor their collateral accounts 24/7. Liquidations are deliberately under-reported by the exchanges, and the operations of the exchanges' clearing mechanisms are now totally obscured. Once the new crop of unformed traders has been wiped out, the price of bitcoin must be inflated again, to attract more into the market.

Please note that it is bitcoin not Bitcoin (capital B is for the blockchain not the token)

Carol is an expert in crypto asset and derivatives markets, financial risk analysis, high-frequency data analysis, blockchains, pricing and hedging financial instruments, volatility analysis, investment strategies, benchmarking and portfolio management. She has a dual career in both industry and as an academic and is currently Professor of Finance at the University of Sussex and a member of the research council for the Exponential Science Foundation. She also edited the Journal of Banking and Finance for ten years, until 2023, and authored the best-selling four-volume text Market Risk Analysis (Wileys, 2008). Carol is a member of the Bachelier Prize Committee and the Steering Committee for the Centre for Financial Industries at the Fields Institute. She sits on several advisory committees for research councils and industry associations. She has a BSc in Mathematics with Experimental Psychology and a PhD in Algebraic Number Theory from the University of Sussex, and an MSc in Mathematical Economics and Econometrics from the London School of Economics.

Throughout her corporate and academic careers Carol has designed and implemented mathematical models for pricing, trading, hedging and risk assessment for a wide range of asset management and investment banking clients, including some of the largest global exchanges such as the New York Stock Exchange, the Intercontinental Exchange and the FTX.US Exchange. During the last few years she has held many interviews on TV, mainstream business news and podcasts on crypto market microstructure. She has held corporate roles as a Director and Head of Market Risk Modelling for Nikko Securities; as a Director of Algorithmics Inc., the Toronto-based firm which provided risk modelling software to financial institutions and banks globally; and as a Bond Analyst for Phillips & Drew, City of London. She has been consulting expert witness for several cases involving investment advice, price manipulation in the past. Recent expert witness work supports actions against crypto asset market abuse.