According to CNBC, bitcoin has plunged by 58% this year, notching the worst quarterly performance since 2011.
Crypto strategists reckon that BTC has slid into a bear market due to global macroeconomic problems such as aggressive monetary tightening and galloping inflation. Some digital currencies have faced the problem of low liquidity. As a result, hedge fund Three Arrows Capital was lined up for liquidation. Apart from that, clients of Celsius, the credit firm, have been unable to withdraw money from their accounts for a long time. The apogee of the сrisis was the collapse of the TerraUSD stablecoin algorithmic that sent shock waves through the crypto sphere.
Analysts see five main reasons for a decline in BTC:
1. Deterioration of macroeconomic indicators
In the last quarter of 2022, the Fed sharply raised the benchmark rate twice in order to rein in soaring inflation. Investors were extremely alarmed that aggressive tightening could lead to a recession in the US and other countries. Wall Street slumped because of those fears. IT stocks also experienced a massive sell-off. It has had a negative impact on the crypto market as BTC has a high correlation with the stock market. Many investors got rid of risk assets, primarily bitcoin.
2. Collapse of TerraUSD (UST)
A blowup of Terra's UST, powered by algorithms and Luna tokens, delivered a severe blow to the crypto market. A stablecoin is a digital currency, usually backed by real-value assets. TerraUSD, or UST was meant to maintain a 1-to-1 peg with the US dollar. However, it did not come true as UST was controlled by an algorithm responsible for the burning and minting of coins. At some point, it failed. Thus, TerraUSD (UST) lost its peg to the US dollar. This triggered a domino effect, resulting in a sharp plunge in Luna, closely linked to Terra USD. Three Arrows Capital, an influential hedge fund, incurred huge losses due to the Luna disaster.
3. Suspension of customer withdrawals by Celsius
Following the collapse of Terra USD, one of the world's leading crypto lending platforms, Celsius, paused customer withdrawals. Previously, Celsius offered its clients a 17% annual yield on deposits. After Terra USD upheaval, Celsius Network suddenly announced that it would suspend withdrawals, citing "extreme market conditions". Later, the company said it was "working to improve the situation."
4. Liquidation of Three Arrows Capital
One of the largest crypto hedge funds, Three Arrows Capital, has fallen into liquidation. Founded by Zhu Su and Kyle Davis, the fund is well-known for its bullish leveraged bets on crypto. Besides, the company used borrowings to trade in the cryptocurrency market. After the Terra USD turmoil, Three Arrows Capital plunged into liquidation. US-based crypto lenders BlockFi and Genesis liquidated some of the company's positions. Earlier, the hedge fund took a loan from Blackfin but failed to meet margin calls from the lender. Voyager Digital issued default notice to Three Arrows Capital for failing to repay its $660 million loan.
5. Conflict between CoinFLEX and "Bitcoin Jesus"
A public dispute between a longtime crypto investor and a digital-asset exchange is another shock that has recently rocked crypto markets. CoinFLEX suspended the withdrawal of client funds, citing "extreme market conditions" and the negative account balance of its client, major crypto investor Roger Ver, who earned the nickname "Bitcoin Jesus" for his evangelical views early in the industry. Reportedly, he failed to pay $47 million of stablecoin USDC as part of a margin call. Naturally, he denies that he owes CoinFlex money. Mark Lamb, the CEO of CoinFlex, said that they could not close his account after its balance turned negative due to the agreement. CoinFLEX has released a new token – Recovery Value USD, or RUUSD. The company is offering 20% interest on the coin to entice investors. Apart from this, CoinFLEX is trying to return the funds from Ver.
