Over the weekend, we were witness to some unprecedented events within the cryptocurrency space. Bitcoin broke below its $20k psychological barrier briefly hitting a 52-week low of $17,708, before staging a minor rebound to reclaim its $20,000 market value and has subsequently stabilized at the ~$20k price over the last few days.
The Market is Over Leveraged
Three Arrows Capital (3AC), one of the world’s largest crypto-focused venture capital firms is facing the risk of default. This is primarily due to their large Terra (Luna) and UST holdings.
Their $559 million dollar investment in LUNA is now worth around $670.
#ThreeArrowsCapital crypto hedge fund may be insolvent.
— Crypto Hunts (🏹, 🏹) (@cryptohunts_) June 15, 2022
In the past hours, 3AC wallets sold over 56,000 stETH to pay off debts.
3AC bought 10.9M locked LUNA for $559.6m - it's now worth $670.45.
UST, Celsius, 3AC. Who is next? https://t.co/Fp41tMgPvL
Also, the Celsius network, a crypto lending platform has halted customer withdrawals and gone dark over the next steps to remedy the problem.
With the failure of Terra (LUNA) and the sudden decrease in the price of Bitcoin, many firms and investors alike have suffered insolvency and failure to meet their margin calls.
The market is undergoing a liquidity crisis and it is exacerbated by the decline in the price of Bitcoin. This may likely result in the BlockFi sector also suffering a liquidity crisis.
The Instability of Stable Coins
Stable coins have also been under attack. A few weeks ago we saw the collapse of Terra (Luna) and its stable coin UST. Another algorithmic stable coin this week that lost its peg is USDD.
USDD Depegged
USDD is an algorithmically determined stable coin, issued by the TRON DAO which has lost its peg to the US dollar this week. TRON has sought additional funding to help support the peg and hopefully be able to regain its peg.
Tether is under an attack
While Tether has been able to maintain its peg to the US dollar, there is increasing scrutiny by regulatory officials as there has been a lack of transparency over how Tether collateralized its funds. Also, last week the Tether website was hit by a DDOS attack.
The market capitalization of Tether has also been dropping by frequent and significant amounts over the last week. Tether’s market cap slid to $66.9 billion on Wednesday, from its peak of $83.22 billion on May 9th.
It would seem that whales are withdrawing their Tether in large and frequent amounts, which would suggest a lack of confidence in this stable coin. This can also be due to the wave of margin calls across the crypto space recently (a margin call is a demand from a lender for more collateral from a borrower to back a loan) and investors withdrawing their Tether to pay back their lenders.
