Wall Street Breakfast: Crypto Crash

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Wall Street Breakfast: Crypto Crash
Wall Street Breakfast: Crypto Crash

Things are looking pretty shaky in the cryptoverse as a continuous flow of damaging headlines continues to rock the sector. The staunch believers are calling it a “crypto winter” before things heat up again, while the naysayers are pointing to the final demise of “tulip mania” they have been warning about for years.

 

Those in between are acknowledging that a shakeout is underway, but feel that only the strongest players will survive in a similar fashion to the aftermath of the dot-com crash. Bitcoin (BTC-USD) is trading under $20,000 again on the developments, and only time will tell which camp prevails.

The latest: The failure of the TerraUSD “stablecoin” project in May sent shockwaves through the crypto market, while the Celsius Network froze accounts and now is preparing for a possible bankruptcy.

 

Popular crypto-focused hedge fund Three Arrows Capital was also ordered to liquidate on Wednesday and crypto exchange CoinFLEX issued new “Recovery Value USD” tokens in an attempt to resume withdrawals. Meanwhile, Coinbase (NASDAQ:COIN) and BlockFi have said they would slash their workforces by a fifth, though others remain undeterred, like MicroStrategy’s (NASDAQ:MSTR) Michael Saylor, who scooped up another 480 Bitcoins for $10M despite undergoing massive unrealized losses.

Growing concerns over the industry even prompted the SEC to deny an application to convert the Grayscale Bitcoin Trust (OTC:GBTC) – which has $13B of assets under management – into the first spot ETF. The move would have potentially led to more institutional investment, but instead turned into another negative headline surrounding the sector. Grayscale is suing the SEC in response, after the agency felt that its product failed to meet requirements “designed to prevent fraudulent and manipulative acts… and protect investors and the public interest.”

 

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DeFi outlook: Sam Bankman Fried, the 30-year-old billionaire founder of FTX, believes that more failures among crypto exchanges are coming amid the ongoing slump that has wiped off $2T in market value since November. “Some third-tier exchanges are already secretly insolvent,” he told Forbes in an interview.

 

 

Increasing worries are also enveloping the broader DeFi industry, such as crypto lenders whose loans are backed by little collateral and lack access to liquidity in the event of a downturn. “It’s just a risky structure,” said Eric Budish, an economist at the University of Chicago Booth School of Business. “It strikes me as diversified as the same way that portfolios of mortgages were diversified in 2006. It was all housing – here it’s all crypto.”