CRYPTO ALL FOR ONE ETHOS WAS THE BIGGEST TRUST BLOCK NOW THE SAME TRUST CHANGES TO THREAT
What started this year in the crypto market as a “risk” of the Federal Reserve-sponsored “sudden risky trade” has decided to expose excessive network has revealed a network that looks like an outpouring of something that has undermined the global financial system. in 2008. As Bitcoin fell by about 70% from the top, the panoply of altcoins also declined. The collapse of the Terra ecosystem - a test closely related to fixed currencies - began with the algorithmic stablecoin losing its peg in US dollars, and ended with a bank rush that made nearly 40 billion tokens worthless. Crypto collateral that seemed to be important enough to support debt one day became a deep discount or illiquid, putting the conclusions of an unpredictable hedge fund and several top lenders in doubt.
The seeds that caused the decline - greed, excessive use of energy, the strong belief that "value goes up" - is nothing new. Once upon a time there were almost every other legacy bubble. In crypto, however, and especially at this very moment, they came to a new and simultaneous industry, with blurred boundaries and failing security that was weakened by the belief that everyone involved could get rich together.
Crypto has gone through several major declines in its history - known by cognoscentium as "crypto winter" and all other financial instruments such as the bear market - but the increase in the market and the increase in acquisitions from Main Street to Wall Street mean more at stake now. . Kim Kardashian hacking a cryptocurrency that became popular shortly thereafter is one thing, but Fidelity's plans to offer Bitcoin 401 (k) could affect the entire generation. Its growth also made this year’s turmoil even more dramatic: After the last two years of crypto ended in 2020, the sector rose to $ 3 trillion last November, before falling below $ 1 trillion. "There is a different taste in this," said Jason Urban, head of marketing at Galaxy Digital Holdings Ltd., in an interview. The Galaxy, a $ 2 billion digital-asset brokerage founded by billionaire Mike Novogratz, has benefited greatly from the rise of crypto - but was also one of the industry's leading investors in the Terra trial. "In fact, to be the victim of your success." Also read: Novogratz Breaks Peace, Calls Luna 'Big Failed Vision'
If Terra were the Bear Stearns of the crypto winter, many feared that the moment of Lehman Brothers was near. Just as lenders' inability to meet margin calls became a warning sign at the beginning of the 2008 financial crisis, crypto this month had its share: Celsius Network, Babel Finance and Three Arrows Capital all posed major problems as prices skyrocketed. of digital-assets declining, resulting in inflation ultimately the result of industry interactions. "By 2022, the downturn looks like a general cut-off," said Lex Sokolin, head of global fintech at ConsenSys. “All the names people use, such as‘ bank running ’or‘ lack of money, ’are the same as the ones you can use in an active but extremely hot financial sector. Consumer confidence and negative attitudes have contributed to both situations, but what is happening now is about money coming out of distributed programs, which are effective due to overuse and neutrality in risk. ”
In bullish times, rising prices are a way for investors to make more money with less money, but when the tanks are in the market, those positions decline sharply. And because it is crypto, such bets often involve more than one type of asset - making the infection in the entire market more likely.
Crypto loans - especially those in financial transactions divided by intermediaries such as banks - often require borrowers to place more collateral than they should for a loan, given the risk of receiving such assets. But when prices in the market become sour, borrowed funds that are once in excess are at risk of being liquidated abruptly - a process that is usually automatic at DeFi and has been fueled by an increase in the number of traders and bots hunting for instant gratification.
John Griffin, a professor of finance at the University of Texas at Austin, said the rise in crypto prices last year may have been fueled by strong speculation, perhaps more so than in the previous crypto winter. The low-level environment and ultra-accommodative monetary policy helped set the stage.
"With rising interest rates and distrust of profitable platforms, this downward spiral has the effect of dismantling these rates faster than rising," he said. Although traditional markets tend to rely on slower and stronger growth rates, that effect seems to be amplified in crypto because of how the speculation is focused on the sector. Administrators go around the sector, looking for signs of instability that could threaten their children’s crypto recovery programs. Even the rules announced in the spring have had to change after the fall of Terra, with some authorities preparing laws to mitigate the systemic impact of stablecoin systems that failed. Any other crypto failure could ultimately open the way for stricter rules, causing the market to reverse at any time in the near future with less risk.
"There may be bear gatherings, but I don't see any progress in reversing the cycle anytime soon," Griffin said. “When the Nasdaq bubble exploded, our research found that smart investors come out first and sell as prices fall, while people buy less and less. I hope history doesn't repeat itself, but it does. ”
Now back to about $ 1 trillion, the crypto market is just slightly more than the estimated $ 830 billion reached in early 2018 before the start of last winter, which has led to the market dropping to almost $ 100 billion in depth. CoinMarketCap