It has been one of the most exciting weeks in the short history of the cryptocurrency market, bookended by the kind of announcements that investors dread more than the counterparty: We’re sorry, but we can’t get your money back at the moment.
In between, a nascent technocratic industry with big ambitions to reinvent the financial system has repeatedly echoed the previous crises of the old order.
It’s been a week since marginal calls, forced sale and important collateral being disclosed as a highly illiquid method in a time of crisis. There was a roar of hedge fund bombings, and tales of opportunism predatory tradeJob cuts and outright problem denial on the part of the major players were almost immediately proven wrong.
Amid it all, the myth has been shattered once and for all that this new crypto financial system was somehow immune to — or even able to take advantage of — the economic fundamentals that currently punish the old one.
It all started late on a Sunday, when there was a kind of crypto-shadow bank called Celsius Network Pending Raffle From depositors attracted by very high interest rates, which were likely later Too good to be true.
By the end of the week, on the other side of the world in Hong Kong, digital asset lender Babel Finance froze too withdrawals.
.Tweet embed It pauses all withdrawals, swaps and transfers between accounts. Working for the benefit of our community is our top priority. Our operations continue and we will continue to share information with the community. More here: https://t.co/CvjORUICs2
– Celsius (CelsiusNetwork) June 13, 2022
Both companies have told customers that we’re working on it, there’s no doubt about that. However, speculation is growing that Celsius Network, at least, is sinking into research firm Kaiko Call The “Lehman-esque” position.
Just as the Lehman Brothers did nearly 14 years ago, Celsius’ problems showed how interconnected the big players in this financial system are and how fast. Contagion It could spread, making this week’s drama a sequel to last week and a prequel for next week.
Several analysts have pointed out the issues Celsius is having with an Ethereum-related token called ETH . betor stETH – a coin designed to act as a tradable proxy for Ether widely used in decentralized finance.
While every stETH is supposed to be redeemable for 1 ether after the much awaited upgrades to the Ethereum blockchain are activated, the recent market turmoil has caused its market value to drop below this level.
Nansen research company also has specified Celsius as one of the parties involved when the UST stablecoin lost its peg to the dollar in May.
The episode with this symbol that was driven Largely through algorithms, crypto-animal spirits and the untenable returns of 19.5% for depositors on the Anchor protocol, it caused tens of billions of dollars to be lost in the Terra blockchain’s incredible implosion.
Nansen’s analysis confirmed that Terra’s Anchor program was a significant source of revenue for Celsius, according to a comment from crypto exchange Coinbase.
“In our view, this likely raises the question of how Celsius will meet its commitments without a 19.5% return,” the Coinbase institutional team wrote. That company, by the way, said this week I will lay off 18% of its previously fast-growing workforce, joining other pink-issued crypto startups like Gemini and BlockFi as they struggle amid a relentless drop in asset prices that has been dubbed the “crypto winter.”
The drama escalated on Wednesday with annoying tweet This appears to confirm the speculation that has been circulating about one of the most influential crypto hedge funds, Three Arrows Capital.
“We are in the process of communicating with relevant parties and are fully committed to working on this,” one of the company’s founders wrote, without revealing any details about exactly “this” it was working on.
We are in the process of communicating with interested parties and are fully committed to working on it
– Zhu Su (zhusu) June 15 2022
By the end of the week, the founders of the multi-billion dollar fund explained to the Wall Street Journal that they were exploring options including a rescue of another company and an agreement with creditors that would buy them time to come up with a plan.
Three Arrows has also been a victim of the scourge of stETH and the collapse of Terra. The fund bought about $200 million in Luna coins used to support the value of Terra’s UST stablecoin, according to the magazine. Luna, which sold for more than $119 in April, is now worth about $0.00059.
Just as Bear Stearns’ hedge funds were among the first to reveal problems from the subprime mortgage crisis, Three Arrows probably won’t be alone. The “cockroach theory” comes to mind: If you see one of those nasty bugs scurrying across the floor, there’s probably plenty of hiding behind the refrigerator or under the sink.
encoder shark tank
In fact, the cryptocurrency hotspot is now no longer pumping coins “to the moon” with tweets full of rocket ship emojis, but rather trying to find where these cockroaches are hiding and make a meal out of them.
some crafty merchants They sent bots roaming the blockchain in search of highly leveraged positions at risk of forced liquidation because the value of their collateral was no longer sufficient to support their loans. If they are successful, they receive a 10% to 15% reduction from the sale of collateral – incentives paid through automated protocols intended to protect them from bankruptcy.
As the dust stopped over the weekend, the damage was horrific. Bitcoin incurred losses for 12 consecutive days, its longest sustained recession, and breached $20,000 early Saturday for the first time since 2020.
On the back of monetary tightening, the world’s largest cryptocurrency is now down more than 70% from its November highs when it was close to $70,000. Ether has fallen below $1,000, after selling as high as $4,866 seven months ago.
What was once a $3 trillion industry worth is now worth Less than 1 trillion dollars.
And despite the similarities between previous crises in traditional finance, there is one big difference as the weekend approaches: players in the old markets can at least turn off their machines on Saturday and Sunday to get some sleep and lick their wounds.
As a three-day weekend approaches in the US, with forecasts for sunny skies in New York, those with heavy exposure to digital assets will still be glued to their screens, as a deadly crypto winter’s snowstorm shows few signs of stopping.
Assisted by Olga Khareef, Emily Nicole and Moyao Shen.
(Except for the headline, this story has not been edited by the NDTV crew and is published from a syndicated feed.)