The second quarter of 2022 was the worst on record for the Bitcoin since 2011. In the period, the cryptocurrency lost 58% in value, according to data from CryptoCompare, going from $45,524 to less than $19,000.
And it’s not just the Bitcoin who has been suffering for the last few months. the sector of digital currencies as a whole bitter losses. But what exactly is going on? To help you understand, CNBC listed 5 critical points. Check out:
1. Macroeconomic pressure
To combat inflation in the United States, the Federal Reserve (Fed) carried out two aggressive interest rate hikes in the second quarter of this year. This has sparked fears of a recession not just in the US market, but in other countries as well.
The move also hit stocks, in particular those of high-growth tech companies. And then, as investors dump risky assets, the selling of the papers weighed on the cryptocurrency space as a whole.
2. TerraUSD collapse
Another major contributor to the fall in digital currencies in Q2 2022 was the collapse of the terraUSD algorithmic stablecoin and its sister token luna.
The episode reverberated through the industry and had knock-on effects, particularly on cryptocurrency hedge funds Three Arrows Capital, which had exposure to terraUSD.
3. Celsius creditor pauses withdrawals
In June, cryptocurrency lender Celsius paused withdrawals for customers. CNBC reports that the company offered users over 18% yields if they deposited cryptocurrencies with Celsius. It then lent that money to players in the cryptocurrency market who were willing to pay a high interest rate to borrow the money.
With the price drop, Celsius decided to pause the withdrawals. And despite later announcing that it was taking “important steps to preserve and protect assets and explore available options,” the problems it faced exposed weaknesses in many of the lending models used in the cryptocurrency industry that offered high yields to users.
4. Liquidation of Three Arrows Capital
Three Arrows Capital, also called 3AC, is one of the most prominent hedge funds focused on cryptocurrency investments.
Last month, the Financial Times reported that cryptocurrency lenders BlockFi and Genesis liquidated some of the company’s positions. The fact is that 3AC had borrowed from BlockFi but failed to meet the margin call, in which case an investor has to commit more funds to avoid losses on a trade made with borrowed money.
In the aftermath, the company also defaulted on a loan of more than $660 million made with Voyager Digital. The sum of it all caused it to go into liquidation, and further exposed the highly leveraged nature of trading in the sector in recent times.
5. CoinFlex X “Bitcoin Jesus”
As with Celsius, cryptocurrency exchange CoinFlex halted customer withdrawals last month, citing “extreme market conditions” and a customer account that went into negative equity.
According to the company, this client, cryptocurrency investor Roger Ver, owes him $47 million. Ver, whose nickname is “Bitcoin Jesus” because of his evangelical views of the industry in its early days, denies the situation.
The CNBC report points out that an account that goes into negative equity would have its positions liquidated, however, CoinFlex and Ver had an agreement that did not allow this to happen.
With that, the company issued a new token, the Recovery Value USD (rvUSD), to raise the US$ 47 million and thus resume withdrawals. It is also offering a 20% interest rate to investors willing to buy and hold the digital currency.
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