The rapid tightening of monetary conditions – part of a push by central bankers to tamp down fast-rising inflation – has sucked liquidity out of crypto markets, and now cracks are appearing across the industry.
Crypto lender Celsius paused all withdrawals earlier this week, citing "extreme market conditions," leading to questions about the firm's liquidity. The Wall Street Journal reported Wednesday that Celsius has hired lawyers specializing in business restructuring to help it navigate its thorny financial situation.
Prominent crypto fund Three Arrows Capital faced at least $400 million in liquidations and scrambled to lower its collateral levels by selling key positions. The Block reported Wednesday that the Three Arrows Capital, popularly known as 3AC, has faced liquidations by crypto lending firms and is in the process of repaying lenders and counterparties.
Coinbase and other big crypto firms are laying off thousands of employees, and analysts are on the hunt for fresh signs of distress. Those include scouring arcane market indicators like the "stETH discount," CoinDesk's Krisztian Sandor reported.
Some firms are coming out proactively with self-assessments of good health (or innocence in the eyes of traders).
Tether, the issuer of the popular dollar-linked stablecoin USDT, denied claims that its commercial paper portfolio is 85% backed by Chinese or Asian commercial paper, as reported by CoinDesk's Jamie Crawley.
Tether described certain rumors spreading to this effect as "completely false and likely spread to induce further panic in order to generate additional profits from an already stressed market," in an announcement on Wednesday.
'Go to zero'
According to FSInsights, an analysis firm, the combination of macro headwinds and over-leveraged yield strategies has resulted in the forced selling of cryptocurrencies in the last few days, wiping more than $200 billion in value from the digital asset market, Will Canny reported.
The "takedown of terraUSD (UST) and Celsius is long-term constructive for the industry," wrote the head of digital asset strategy, Sean Farrell.
"Such public displays of ignorant capital destruction are often overlooked in the traditional finance industry (or take a very long time to unwind)," the note said. Fortunately, he wrote, crypto markets have the benefit of "iterating and improving at a more rapid pace."
The prevailing sense in the market, though, is that there's plenty of pain still to come.
The celebrity investor Kevin O'Leary says he isn't ready to call a bottom in the crypto sector short of a major negative occurrence.
"You don't get a bottom until you have an event," O'Leary told CoinDesk this week. "In the crypto world, we need someone to go to zero."
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