During the quarter, the US Federal Reserve two aggressive interest rate hikes to fight rampant inflation. This raised fears of a recession in the US and elsewhere.
Bitcoin is closely related to the price movement of US stock indices. The stock sell-off has affected bitcoin and the cryptocurrency market as investors divest themselves of risky assets.
The first major episode in the last quarter was the collapse of the algorithmic stablecoin terraUSD and child token luna, which sent shockwaves across the industry.
A stablecoin is a type of cryptocurrency, usually pegged to a real asset. TerraUSD, or UST, was to be pegged one-for-one to the US dollar. Some stablecoins are backed by real assets such as fiat currency or government bonds. But ESN was algorithm-driven and a complex system of burning and minting coins.
This system has failed. TerraUSD lost its peg to the dollar and brought to the demise of the associated luna token, which became worthless.
This episode reverberated throughout the industry and had spillover effects, most notably on the Three Arrows Capital cryptocurrency hedge funds that had access to terraUSD (more on that below).
Crypto lender Celsius Suspended Withdrawals for Customers in June.
The company offered users a return of over 18% if they deposit crypto into Celsius. He then loaned that money to players in the cryptocurrency market who were willing to pay high interest to lend the money.
But falling prices put this pattern to the test. Celsius cited “extreme market conditions” as the reason for the suspension of withdrawals.
On Thursday, Celsius said in a blog post that it is taking “important steps to preserve and protect assets and explore the options available to us.”
These options include “among other things, pursuing strategic transactions as well as restructuring our liabilities.”
The problems with Celsius exposed the weakness of many of the lending models used in the cryptocurrency industry, which offered high returns to users.
Three Arrows Capital is one of the most famous hedge funds specializing in cryptocurrency investments.
The decade-old firm, also known as 3AC, founded by Zhu Su and Kyle Davis, is known for its bullish bets in the highly leveraged cryptocurrency market.
3AC is facing the collapse of its algorithmic stablecoin terraUSD and sister token luna.
Financial Times It was reported last month that U.S. crypto lenders BlockFi and Genesis liquidated some 3AC positions, citing people familiar with the matter. 3AC took out a loan from BlockFi but failed to meet a margin call.
A margin call is a situation in which an investor must put in more funds to avoid losses on a trade made with borrowed money.
then 3AC defaulted on a loan worth over $660 million from Voyager Digital.
As a result, Three Arrows Capital went into liquidation.a person with knowledge of the matter told CNBC this week.
The 3AC situation has demonstrated that trading has recently been in a highly leveraged industry.
Cryptocurrency exchange CoinFlex suspended customer withdrawals last month, citing “extreme market conditions” and a customer account that went negative.
CoinFlex said the client, who it claims is prominent crypto investor Roger Ver, owes the company $47 million. Ver, nicknamed “Bitcoin Jesus” for his evangelical views of the industry in its early days, denied that he owes money to CoinFlex.
The exchange said that it is common for positions in an account with a negative balance to be liquidated. But CoinFlex and Ver had an agreement that prevented this from happening.
CoinFlex released a new token called Recovery Value USD or rvUSDto raise $47 million to resume withdrawals and is offering a 20% interest rate for investors looking to buy and hold a digital coin.
CEO Mark Lamb told CNBC this week that the company is in talks with number of distressed debt funds to buy a token. CoinFlex is also trying to refund Ver.