The crypto market is known for its ups and downs, but the latest slide is unprecedented in its magnitude.
Crypto has gone through several major drops in its history — known by its parlance as “crypto winters” and to the rest of finance as a bear market — but the market’s expansion and increasing adoption from Main Street to Wall Street means more is at stake now. After crypto’s last two-year hibernation ended in 2020, the sector spiked to around $3 trillion in total assets last November, before plunging to less than $1 trillion.
Let’s look at the the top four losses or bankruptcy of crypto Bear market of 2022 and how they are linked. The interconnections that collapsed like pack of cards.
Terra Luna’s Crash.
“I just wake up and cry” Yotsy Ruiz a crypto investor told Marketwatch. Terra’s collapse was a huge blow, but “not everything was lost, and I knew I had to assume the risk,” Ruiz said. “I got other solid projects for the long term.” Ruiz, who says his portfolio is split between stocks and crypto, believes prices of some digital currencies will eventually go up. Ruiz story is similar to many of terra Luna investors who lost almost $40 billion in total.
TerraUSD has been pegged almost exactly to the dollar since its release, but on May 9 it crashed, and it is now worth just over $0.11 (€0.10).
Its sister coin Luna was worth more than $80 (€76) a coin at the start of May, and as of 18 May it was worth a fraction of a cent.
The crash of these two coins has been compared to a mini 2008 financial crisis within the crypto eco-system, with their collapse having a knock-on effect on other digital coins and projects, wiping billions of dollars off the market.
3AC : From $10 Billion In Assets To Bankruptcy.
As recently as March, Three Arrows Capital managed about $10 billion in assets, making it one of the most prominent crypto hedge funds in the world. The firm 3AC is headed to bankruptcy court after the plunge in cryptocurrency prices and a particularly risky trading strategy combined to wipe out its assets and leave it unable to repay lenders.
The fall of Three Arrows Capital can be traced to the collapse in May of terraUSD (UST), which had been one of the most popular U.S. dollar-pegged stablecoin projects.
The stability of UST relied on a complex set of code, with very little hard cash to back up the arrangement, despite the promise that it would keep its value regardless of the volatility in the broader crypto market. Investors were incentivized — on an accompanying lending platform called Anchor — with 20% annual yield on their UST holdings, a rate many analysts said was unsustainable.
The chain of pain may just be beginning. 3AC had a lengthy list of counterparties, or companies that had their money wrapped up in the firm’s ability to at least stay afloat. With the crypto market down by more than $1 trillion since April, led by the slide in bitcoin and ethereum, investors with concentrated bets on firms like 3AC are suffering the consequences.
Voyager Bankruptcy: Owes $1.3 Billion To $100k Creditors.
Voyager Digital had suspended all withdrawals and trading last week but said “volatility and contagion” in the crypto markets had forced it into a filling for bankruptcy which shields a business from creditors while it explores strategic alternatives.
Voyager in it’s bankruptcy filling, described itself as a victim of 3AC’s own bankruptcy and the general collapse in prices of cryptocurrencies such as Bitcoin . On Tuesday, before the filing, Voyager stock traded at 34 cents, down 99% from its November high.
The big question now is what will happen to Voyager’s depositors, many of whom likely didn’t understand what risks they were taking by holding funds with the company. Voyager on Wednesday said it has $1.3 billion of crypto on its platform, as well as a bank account holding $350 million in cash for customers. The company says it is owed more than $650 million by 3AC, whose attorneys said in a filing last week that the company had collapsed “in the wake of extreme fluctuations in cryptocurrency markets.”.
Celsius Network $1.2 Billion Shortfall In Bankruptcy Filing.
On Thursday, Crypto lender Celsius Network revealed a $1.2bn hole in its balance sheet caused by what chief executive Alex Mashinsky called “poor” investments and other “unanticipated” losses. It filed for bankruptcy, showing liabilities of $5.5bn, and assets of just $4.3bn.
Celsius made the disclosure as it sought US bankruptcy protection this week after freezing customer funds in June, which made it the latest victim of the crash in crypto markets that has forced two other large companies into recent bankruptcy.
The vast majority of the liabilities, $4.7bn, were attributed to Celsius users. The filing suggested they may face significant losses and blamed the company’s problems on a mixture of bad bets, market conditions and a failure to manage its rapid growth.
Will Investors Recover Or Count Their Losses And Move On ?
As the norm for smart businesses, when an organisation is unable to honour its financial obligations or make payment to its creditors, it files for bankruptcy. A petition is filed in the court for the same where all the outstanding debts of the company are measured and paid out if not in full from the company’s assets.
The negative aspect for the investors is that it may last for years as funds can only be paid back to the investors whenever (which may never happen) the company become sustainable or raise money to off set it’s debts. An investor can sue and have access to the company financial statements and demand any available asset in the company’s possession commensurate to the debt.
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