Cryptocurrency Market: Crypto Week at a Glance: Volatility Shakes Crypto Markets, BTC Below $20,000

The cryptocurrency industry lives up to its legendary volatility. After rallying more than 20% from the 2022 lows, it immediately reversed completely and fell another 12%.

This drop can be attributed to the DeFi Contagion effect that started with the collapse of LUNA and the rejection of GBTC’s application to become a Bitcoin Spot ETF.

3AC or 3 Arrows Capital has wreaked havoc in the crypto industry. It is a digital asset-focused hedge fund that started in 2012. It had invested in major cryptocurrencies and held shares in cryptocurrency-related companies.

The hedge fund borrowed from many institutions and reached an AUM or assets under management of $18 billion. The management of the hedge fund took advantage of its reputation and secured these loans at a very low collateral rate.

The hedge fund was already suffering from current market conditions and its investment in Terra Luna, which is worth next to nothing compared to its investment.

The leveraged Gbtc trades could have been the last straw for the hedge fund when the positions were liquidated. In simple terms, this means that the hedge fund may not be able to repay the loans it has taken out.

There are new allegations that the hedge fund is a Ponzi scheme, where they borrowed capital to pay interest on capital already borrowed.

BlockFi, Voyager and Babel Finance were among the institutions and it has now been confirmed to have 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 platform’s price action indicates that people have lost faith in Voyager. It sounds suspiciously like the Lehman Brothers crisis of 2008.

BlockFi and Celsius sought a bailout. BlockFi may have just gotten it in the form of a line of credit and a potential acquisition of FTX. This clarification put an end to the rumor that the company which was worth billions of dollars before the turmoil was about to be sold for a whopping $25 million.

FTX, however, passed on Celsius after noticing that there was a $2 billion discrepancy in its balance sheet. Celsius, another crypto bank that had suspended withdrawals, may be waving the white flag as soon as FTX officially reports the $2 billion discrepancy.

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%. Unfortunately for Grayscale, the SEC denied their request.

This rebate rate has been a problem for Grayscale as it has made their products undesirable and the only lasting solution to immediately eliminate the rebate is to convert GBTC to an ETF.

The markets weren’t hoping for this because a Bitcoin Spot ETF would have been an event that could have reversed or at least stabilized the markets. Grayscale sued the regulator.

Demand vs Supply

Microstrategy and the country of El Salvador collectively purchased 560 Bitcoins. Although people are cheering for the buy, on-chain data shows that the trade balance has grown to 9,000 Bitcoin over the past week.

Top winners this week (as of July 3, 2022 at 12:40 p.m.)

Terra ClassicUSD (USTC): +448.18%

USD (USD): +2%

Top losers this week (as of July 3, 2022 at 12:40 p.m.)

Avalanche (AVAX): 25% less

KuCoin Token (KCS): 24% decrease

THORString (RUNE): 24% decrease

Zcash (ZEC): 23% decrease

STEPN (GMT): 23% decrease

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