The hedge fund was already suffering on account of the current market conditions and its investment in Terra Luna, which is almost worthless compared to its investment.The leveraged Gbtc trades might have been the last straw for the hedge fund when the positions were liquidated. In simple terms what this means is that the hedge fund might not be able to pay back the loans it had taken.
The cryptocurrency industry is living up to its legendary volatility. After making a more than 20 per cent recovery from the lowest prices of 2022 it has immediately made a complete U-turn and has dropped by another 12 per cent.
This drop can be attributed to the DeFi Contagion effect that started with LUNA’s collapse and the rejection of GBTC’s request to become a Bitcoin Spot ETF.
3AC or 3 Arrows Capital has created havoc within the crypto industry. It is a digital asset-focused hedge fund that started back in 2012. It had invested in the top cryptocurrencies and held equity in cryptocurrency-related companies.
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The hedge fund borrowed from many institutions and reached an AUM or asset under management of $18 billion. The leadership of the hedge fund leveraged its reputation and secured these loans at a very low collateral rate.
The hedge fund was already suffering on account of the current market conditions and its investment in Terra Luna, which is almost worthless compared to its investment.
The leveraged Gbtc trades might have been the last straw for the hedge fund when the positions were liquidated. In simple terms what this means is that the hedge fund might not be able to pay back the loans it had taken.
There are new allegations about the hedge fund being a Ponzi scheme, where they borrowed capital to pay the interest on the already borrowed capital.
BlockFi, Voyager, and Babel Finance were some of the institutions and it has now been confirmed that it has defaulted on Voyager’s $700 million loan. Voyager, a platform similar to a crypto bank, has completely stopped its withdrawals.
This is a horrible sign for people who have their money on the platform. The price action of the platform is indicating that people have lost complete confidence in Voyager. This is eerily similar to the Lehman brothers’ crisis back in 2008.
BlockFi and Celsius have been looking for a bailout. BlockFi might have just got it in the form of a credit line and a potential acquisition from FTX. This clarification ended the rumor that the company which was worth billions of dollars before the turmoil was about to be sold for a mere $25 million.
FTX has however passed on Celsius after it noticed that it had a $2 billion gap in its balance sheet. Celsius, yet another crypto bank that had suspended its withdrawals, might wave the white flag soon as FTX has officially pointed out the $2 billion gap.
US SEC says no
GBTC is the ticker name for Grayscale Bitcoin Trust and has $12.3 billion in AUM. GBTC represents a certain amount of BTC and the price of GBTC should be equal to the price of Bitcoin.
It has however been trading at a discount since March 2021 and is currently trading at the highest discount of 30 per cent. Unfortunately for Grayscale, the SEC has rejected their request.
This discount rate has been a problem for Grayscale as it has made their products undesirable and the only sustainable solution to immediately eliminate the discount is to convert GBTC into an ETF.
The markets were not hoping for this as a Bitcoin Spot ETF would have been an event that might have reversed or at least stabilised the markets. Grayscale has sued the regulator as a counter.
Demand vs Supply
Microstrategy and the country of El Salvador have collectively bought 560 Bitcoins. Although people are cheering on the purchase, on-chain data indicates that the balance on exchanges has increased to 9,000 Bitcoins over the past week.
Top Gainers This Week (as of 12.40 PM, July 03, 2022)
Terra ClassicUSD (USTC): 448.18% up
USDD (USDD): 2% up
Top Losers This Week (as of 12.40 PM, July 03, 2022)
Avalanche (AVAX): 25% down
KuCoin Token (KCS): 24% down
THORChain (RUNE): 24% down
Zcash (ZEC): 23% down
STEPN (GMT): 23% down
Crypto Returns Calculator
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Bought on₹Current Value₹ Buy (Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)
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