Crypto’s Excruciating Week Has Traders Prepared for the Next Crisis
It was one of the most dramatic weeks in the brief history of the cryptocurrency market, the kind of announcements that scare investors the most from the counterparty: We’re sorry, but we can’t get your money back right now.
In between, a nascent tech industry with grand ambitions to reinvent the financial system was repeatedly shaken by the echoes of past crises in the old system.
it was a week margin Call, forced sales and significant collateral are being exposed as too liquid in times of crisis. There was a rumble of hedge-fund explosions, the tale of the opportunist hunter tradeThe vehement denial of job cuts and the problems of the major players was almost immediately proven wrong.
Amidst all this, the myth was shattered once and for all that this new crypto financial system was somehow immune to – or even able to take advantage of – from punishing the old system at present. Economic fundamentals.
It all started late Sunday, when a type of crypto shadow bank called Celsius Network suspended clearance from depositors who were tempted by higher interest rates, which in retrospect were likely to 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 also froze withdrawal.
,@ Celsius Network Stopping all withdrawals, swaps and transfers between accounts. Working in the interest of our community is our top priority. We continue to operate and we will continue to share information with the community. more here: https://t.co/CvjORUICs2
— Celsius (@CelsiusNetwork) 13 June 2022
We’re working on it, both firms told clients, and there’s no doubt they are. Yet speculation continues to grow as to which research firm Kaiko is drowning in, at least, the Celsius network. called A “Lehman-esque” situation.
Like Lehman Brothers nearly 14 years ago, the Celsius crisis showed how interconnected and fast the big players are in this financial system. fingering Could spread, turning this week’s drama into last week’s sequel and next week’s prequel.
Several analysts have pointed to the problems Celsius is said to have with Ethereum-linked tokens. betting ETHOr stETH – a coin designed as a tradable proxy for Ether that is widely used in decentralized finance.
While each STET can be redeemed for one ether once the long-awaited upgrade to the Ethereum blockchain goes into effect, the recent market turmoil has caused its market cap to drop below that level.
Terra Connection
Research firm Nansen also Identified When the UST stablecoin lost its peg against the dollar in May, Celsius as one of the parties involved.
that token episode, which were taken Tens of billions of dollars were lost in the spectacular explosion of the Terra blockchain, from a volatile 19.5% yield for depositors in massive algorithms, crypto animal spirits and anchor protocols.
As commented by crypto exchange Coinbase, Nansen’s analysis confirmed that Terra’s anchor program was a significant source of yield for Celsius.
“In our view, this raises the question of how Celsius can meet its obligations without yielding 19.5%,” wrote Coinbase’s institutional team. By the way, that firm said this week it will be closed 18% of its previously rapidly growing workforce is joining other pink-slip issuance crypto startups such as Gemini and BlockFi, which are struggling amid a steady decline in asset prices in what has been dubbed the “crypto winter”. goes.
The play began on Wednesday with a Dangerous Tweet This appears to confirm speculation that was swirling around one of the most influential hedge funds in crypto, Three Arrows Capital.
“We are in the process of communicating with relevant parties and are fully committed to getting this done,” wrote one of the firm’s co-founders.
We are in the process of communicating with relevant parties and are fully committed to working on
— zhu su (@zhusu) 15 June 2022
By the end of the week, the founders of the multi-billion-dollar fund had explained to the Wall Street Journal that they were exploring options that include a hedge by another firm and an agreement with creditors that would give them time to plan. .
Three Arrows was also a casualty of both the stETH woes and the fall of Terra. According to the Journal, the fund had purchased approximately $200 million in the Luna currency used to back the value of Terra’s UST stablecoin. The Luna, which sold for over $119 in April, is now worth about $0.000059.
Just as Bear Stearns’ hedge fund was among the first to reveal problems from the subprime mortgage crisis, Three Arrows is not alone. The “cockroach theory” comes to mind: If you see one of those nasty bugs roaming the floor, chances are there’s a lot more hiding behind the fridge or under the sink.
crypto shark tank
In fact, the hot trade in crypto is no longer pumping coins “over the moon” with tweets full of rocket-ship emoji, but rather trying to figure out where those cockroaches are hiding and make food out of them.
something clever merchants The threat of forced liquidation has sent bots to further the blockchain in search of highly leveraged positions because the value of their collateral is no longer high enough to back up their loans. If successful, they receive a 10% to 15% reduction in collateral sales – incentives paid by the automated protocol to protect them from bankruptcy.
As the dust settled at the end of the week, the damage was staggering. Bitcoin has registered 12 consecutive days of losses, its longest sustained bearish run, and breached $20,000 early Saturday for the first time since 2020.
Against a backdrop of monetary tightness, the world’s largest cryptocurrency is now down more than 70% from its November highs, when it was close to $70,000. Ether fell below $1,000 and sold out seven months ago to $4,866.
What was once a $3 trillion industry is now worth less than $1 trillion,
And despite the similarities to past crises in traditional finance, there is one big difference in the form of weekends: players in old-fashioned markets have to shut down their machines on at least Saturday and Sunday to get some sleep and lick their wounds. get for.
As the three-day holiday weekend in the US draws to a close, with sunny skies forecast in New York, digital asset heavyweights will be glued to their screens where the deadly blizzard of crypto winter has shown no sign of defeat. .
– With assistance from Olga Kharif, Emily Nicole and Muiao Shen.
(Except for the title, this story has not been edited by NDTV staff and is published from a syndicated feed.)