A HORROR WEEK FOR CRYPTO INVESTORS AND THEIR MONEY
In the meantime, the emerging technology industry with good intentions to re-establish the financial system was repeatedly shaken by past setbacks in the old system. It was a week of margin calls, compulsory sales and key contracts are portrayed as illegal during a crisis. There has been a flurry of hedge-fund blowups, news of opportunistic trading, job cuts and severe opposition from problems from key players that have been found to be irreversible.
After all, the myth disappeared once and for all that this new crypto financial system was somehow protected - or able to gain - the economic foundations that punish the old system now.
It all started late Sunday, when a crypto shadow bank called Celsius Network suspended the withdrawal of investors who had been lured by high interest rates, which, in hindsight, was too good to be true. Over the weekend, on the other side of the world in Hong Kong, digital-asset lender Babel Finance also suspended withdrawals.
We work on it, both companies tell customers, and no doubt they are. It is growing, however, to speculate that the Celsius Network, at least, is sinking into what research firm Kaiko calls the "Lehman-esque" space.
As Lehman Brothers did almost 14 years ago, Celsius' plight showed how big the players are connected to the financial system and how quickly the infection can spread, making this week's drama follow last week's and next week's.
Many analysts have highlighted the problems Celsius has with Ethereum-connected ETH token, or stETH - a coin designed to be the most widely traded Ether trader in the fixed currency. Although all stETH is intended for use with a single Ether after the long-awaited development of the Ethereum blockchain, the recent market turmoil has caused its market value to fall below that level.
Research firm Nansen also identified Celsius as one of the parties involved when UST stablecoin lost its stake in the dollar in May. An episode with that character, which was largely driven by algorithms, crypto animal spirits and the unbearable yield of 19.5% of investors in the Anchor Protocol, resulted in the loss of tens of billions of dollars in the impressive installation of the Terra blockchain.
Nansen's analysis confirmed that Terra's Anchor system has been an important source of Celsius yields, according to analysis from crypto exchange Coinbase. "In our view, this may have raised the question of how Celsius could fulfill its obligations outside of the 19.5% yield," wrote the Coinbase team. The company, by the way, said this week it would lay down 18% of its fastest-growing employees, joining other cheap crypto startups like Gemini and BlockFi that struggled through the relentless decline in commodity prices. called "crypto winter."
The drama escalated Wednesday with a shocking tweet that appeared to confirm the speculation surrounding one of the most influential currencies in crypto, Three Arrows Capital. "We are in the process of contacting the relevant agencies and are fully committed to fixing this," wrote one of the company's founders, without revealing details about what "this" meant.
By the end of the week, the founders of a multi-billion dollar fund had explained to the Wall Street Journal that they were exploring options that included rescuing another company and an agreement with creditors that would buy them time to make plans. The Three Arrows, too, were the victims of both STETH accidents and Terra's fall. The fund had purchased about $ 200 million in Luna's currency used to support the value of Terra's UST stablecoin, according to the Journal. Luna, which sold for more than $ 119 in April, now costs about $ 0.000059.
Just as Bear Stearns’s hedge funds were among the first to highlight the problems arising from the subprime mortgage crisis, the Three Arrows are probably not alone. "Cockroach theory" comes to mind: If you see one of those ugly bugs rolling on the floor, there is probably a lot to hide behind the fridge or under the sink.
Crypto Shark Tank
In fact, the hot crypto trade now no longer pumps "moon" coins via tweets full of rocket-ship emojis, but instead tries to figure out where those roaches are hiding and making food out of them. Some fraudulent traders send bots to spy on blockchains in search of higher positions that are at risk of being forcibly terminated because their collateral value is not enough to back up their borrowed money. If successful, they receive a 10% to 15% reduction in collateral auction - incentives paid by automated protocols designed to protect them from sinking.
By the end of the week, the damage had been done. Bitcoin has fallen 11 straight days, its longest decline ever. It is currently hovering above the $ 20,000 level, a loss of more than 70% from its high in November when it approached $ 70,000. Ether is struggling to hold more than $ 1,000, having sold for $ 4,866 seven months ago. What was once a $ 3 trillion industry is now less than $ 1 trillion.
And despite the similarities in past problems with traditional finances, there is one major difference as the weekend approaches: Players in the ancient markets at least get to turn off their machines on Saturdays and Sundays to get some sleep and lick the wounds. As the three-day holiday weekend approaches the US, with forecasts of sunny weather in New York, those heavily exposed to digital assets will remain attached to their screens, as the hot winter crypto storm shows little sign of quitting.