Major crypto platforms and funds are unraveling with big market consequences
Major crypto platforms and funds are unraveling, and the domino effects are having a big impact on the market. Here’s what this means and how markets can get even worse…
The big risk in the market…
Cascading effects from margin calls and liquidations. Here’s what this means and why it matters:
- Funds and institutions have taken out loans to purchase crypto — and these loans may have crypto as collateral.
- If crypto prices drop low enough, the borrower receives a margin call (i.e., put up more collateral or cash). If they don’t, the collateral on the loan will be sold.
Today: Crypto prices have fallen so low, major players are facing margin calls or liquidations (forced sales). Forced selling risks bringing down prices even further (cascading effect). And that’s the big risk.
MicroStrategy has lost $1B+ on its $3.9B Bitcoin investment. This week, it was reported that MicroStrategy was facing a margin call — which CEO Michael Saylor denied.
Skeletons are coming out of the closet
The crypto dominos are falling — and each is triggering more selling. Falling crypto prices tipped the first domino over…
Domino 1: In May, major crypto protocol Terra Luna blew up and destroyed over $50B in market value.
Domino 2: On Sunday, Celsius froze customers’ withdrawals due to “extreme market conditions” — putting billions of customer funds in limbo. Celsius hired restructuring lawyers and brought on Citigroup to advise on the next steps.
- 🔗 Celsius had exposure to Terra but said they were able to exit their positions early on.
Domino 3: On Wednesday, Three Arrows Capital (3AC) — a prominent crypto hedge fund with an estimated $10B in assets at market peak — reportedly faced $400M in asset liquidations by its lenders.
- 🔗 3AC faced heavy losses when Luna collapsed and has reportedly been selling its holdings to prevent further liquidations.
Finblox, a smaller Hong Kong-based competitor to Celsius, said it was pausing rewards distribution and capping daily withdrawals on its platform.
Investors: What next?
The impacts from dominos two and three could have big impacts on the rest of the market.
- Celsius: Per the Head of Market Insights at Genesis Trading, Noelle Acheson, Celsius could have a bigger impact on the market than Terra.
- 3AC: Twitter user degentrading, who called the Celsius collapse, believes the fall of 3AC — one of the largest borrowers in the market — could lead to large losses for their lenders.
Although Celsius hired restructuring lawyers and brought on Citigroup to advise on next steps, the outcome is still unknown as billions in customer deposits are still frozen.
The lower crypto prices go, the higher the chances of more institutions facing liquidations.