Bitcoin has lost about 58% of its value this year, posting its worst quarterly performance since 2011, writes CNBC.
Macroeconomic issues such as rising interest rates and rampant inflation have caused stocks to sell off and seep into the cryptocurrency market. Another problem facing the sector was a lack of liquidity, which led to the liquidation of the FX hedge fund Three Arrows Capital and the temporary suspension of withdrawals by clients of the lending firm Celsius. This quarter also saw the collapse of the algorithmic stablecoin Terra USD, which sent shockwaves through the industry. About $1.2 trillion has been erased from the entire cryptocurrency market.
Here are five hotspots that have hit the cryptocurrency industry in the last quarter.
1. Macroeconomic pressure
During the quarter, the US Federal Reserve made two sharp interest rate hikes to combat runaway inflation. This raised fears of a recession in the US and elsewhere, and hurt stocks, particularly those of fast-growing technology companies. Bitcoin is closely linked to the price movement of US stock indices, and the stock sell-off has affected it and the entire cryptocurrency market as investors get rid of risky assets.
2. Crash of Terra USD
The collapse of the algorithmic stablecoin Terra and the child token Luna caused a real shock in the industry. A stablecoin is a type of cryptocurrency, usually pegged to a real asset. Terra USD, 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, however UST was driven by an algorithm and a complex system of burning and minting coins that failed and Terra USD lost its peg to the dollar, which, like a domino effect, led to the demise of its associated Luna token. , which became worthless, and reverberated throughout the industry with unpleasant side effects, most notably for the Three Arrows Capital cryptocurrency hedge fund, which had access to Terra USD (see below).
3. Lender Celsius Suspended Withdrawals for Customers in June
The company offered users a return of over 18% if they deposited crypto into Celsius. She then lent that money to players in the cryptocurrency market who were willing to pay a high rate to borrow that money. But falling prices for cryptocurrencies called this model into question, and Celsius cited extreme market conditions as the reason for the suspension of withdrawals. Celsius later said in a blog post that it “is taking significant steps to preserve and protect assets and explore options available, which include pursuing strategic deals as well as restructuring our liabilities, among other options.”
4. Liquidation of Three Arrows Capital
Three Arrows Capital is one of the most famous cryptocurrency hedge funds with a 10-year history, also known as 3AC, founded by Zhu Su and Kyle Davis, known for being bullish in the highly leveraged cryptocurrency market. . 3AC faced the collapse of Terra USD algorithmic stablecoin and Luna token. U.S. crypto lenders BlockFi and Genesis liquidated some positions of 3AC, which took out a loan from BlockFi but failed to meet a margin call. A margin requirement is a situation in which an investor must put in more funds to avoid losses on a trade made with borrowed money. 3AC then defaulted on a loan of more than $660 million from Voyager Digital, and as a result, Three Arrows Capital was liquidated.
5. CoinFlex vs Bitcoin Jesus Brawl
Cryptocurrency exchange CoinFlex suspended customer withdrawals last month, citing “extreme market conditions” and the customer’s account turning negative. The company said its client, prominent crypto investor Roger Ver, owes the company $47 million. Ver, nicknamed “Bitcoin Jesus” for his evangelical views of the early days of the crypto industry, denied that he owed CoinFlex money. The exchange stated that normally an account that goes negative is liquidated, however, an agreement was made between CoinFlex and Ver that did not allow this. CoinFlex has launched a new token called Recovery Value USD, or RUUSD, to raise $47 million to resume withdrawals and is offering a 20% rate for investors willing to buy and hold this currency.