Bitcoin lost about 58% of value in the second quarter of 2022, posting its worst quarterly performance since 2011.
Macroeconomic issues, such as rising interest rates and rampant inflation, led to a sell-off in stocks and filtered through to the cryptocurrency market.
But the industry has also seen a wave of liquidity concerns, with hedge fund Three Arrows Capital going into liquidation and lending firm Celsius pausing withdrawals for customers.
The quarter also saw the collapse of algorithmic stablecoin terraUSD which sent shockwaves through the industry.
In this article
Bitcoin had its worst quarter since 2011. Here's whyWATCH NOW
Bitcoin had its worst quarter since 2011. Here’s why
Bitcoin just had its worst quarter since 2011 and its worst month on record.
The world’s largest cryptocurrency lost about 58% of value in the second quarter of 2022. Around $1.2 trillion has been wiped off the entire cryptocurrency market.
Amid the chaos, crypto firms have announced layoffs and the industry is moving toward consolidation via acquisitions.
Here are five flashpoints that hit the cryptocurrency industry last quarter.
1. Macroeconomic pressure
During the quarter, the U.S. Federal Reserve carried out two aggressive interest rate hikes to battle rampant inflation. That has sparked fears of a recession in the U.S. and other countries.
It has also hit stocks, in particular high-growth technology names. The tech-heavy Nasdaq Composite is down 22.4% for the second quarter, its worst quarterly performance since 2008.
Bitcoin has been closely correlated to the price movement of U.S. stock indexes. The stock sell-off has weighed on bitcoin and the crypto market as investors dump risky assets.
2. TerraUSD collapse
The first major episode last quarter was the collapse of the algorithmic stablecoin terraUSD and sister token luna which sent shockwaves through the industry.
A stablecoin is a type of cryptocurrency usually pegged to a real-world asset. TerraUSD, or UST, was supposed to be pegged one-to-one with the U.S. dollar. Some stablecoins are backed by real assets such as fiat currency or government bonds. But UST was governed by an algorithm and a complex system of burning and minting coins.
What you need to know about the controversial stablecoin that is worrying crypto marketsWATCH NOW
What you need to know about the controversial stablecoin worrying crypto markets
3. Lender Celsius pauses withdrawals
Crypto lender Celsius paused withdrawals for customers in June.
The company offered users yields of more than 18% if they deposit cryptocurrency with Celsius. It then lent that money to players in the crypto market who were willing to pay a high interest rate to borrow the money.
But the price slump put that model to the test. Celsius cited “extreme market conditions” as the reason for pausing withdrawals.
On Thursday, Celsius said in a blog post that it was taking “important steps to preserve and protect assets and explore options available to us.”
These options include “pursuing strategic transactions as well as a restructuring of our liabilities, among other avenues.”
The issues with Celsius exposed the weakness in many of the lending models used in the cryptocurrency industry that offered users high yields.
4. Three Arrows Capital liquidation
Three Arrows Capital is one of the most prominent hedge funds focused on cryptocurrency investments.
The decade-old firm, also known as 3AC, started by Zhu Su and Kyle Davies, is known for its highly leveraged bullish bets on the crypto market.
3AC had exposure to the collapsed algorithmic stablecoin terraUSD and sister token luna.
The Financial Times reported last month that U.S.-based crypto lenders BlockFi and Genesis liquidated some of 3AC’s positions, citing people familiar with the matter. 3AC had borrowed from BlockFi but was unable to meet the margin call.
A margin call is a situation in which an investor has to commit more funds to avoid losses on a trade made with borrowed money.bangladesh
Then 3AC defaulted on a loan worth more than $660 million from Voyager Digital.
As a result, Three Arrows Capital fell into liquidation, a person with knowledge of the matter told CNBC this week.dhaka
The 3AC situation has exposed the highly leveraged nature of trading in the industry in recent times.