Weekend Roundup: Contagion Gathers; Respite for Bitcoin

Bitcoin and other cryptocurrencies extended a brutal sell-off over the weekend, with the world’s largest cryptocurrency briefly dropping below US$19,000 for the first time since December 2020 before paring some losses.

At the time of writing, Bitcoin (BTC) is trading at US$19,986.33 (+8.27%) while Ethereum (ETH) is trading at US$1,078.23 (+13.03%). Major altcoins such as Solana (SOL) and Avalanche (AVAX) have also been trading in green since yesterday after suffering significant losses over the weekend.

Investors are increasingly skittish over the aggressive interest rate hikes from the U.S. Federal Reserve and a worsening liquidity crunch sparked by recent Terra debacle that has pushed major crypto platforms into financial trouble.

Three Arrows Capital CEO breaks silence

Singapore-based crypto hedge fund Three Arrows Capital (3AC) is reportedly on the brink of insolvency after the market crash significantly reduced the value of its holdings.

On Friday, CEO Kyle Davies told The Wall Street Journal that 3AC was considering asset sales and a rescue package by another firm to avoid collapse.

Davies also revealed that 3AC bought roughly US$200 million in LUNC (previously LUNA) tokens during a US$1 billion token sale issued by Luna Foundation Guard in February this year.

However, a whistleblower from the Terra Community Forum revealed that 3AC had purchased a total of 10.9 million locked LUNC worth nearly US$560 million, with the position now worth less than US$1,000.

Three Arrows Capital bought 10.9M locked LUNA for $559.6m – it's now worth $670.45.

Ouch
— Crypto Maxi (@cryptoMaxi420) June 14, 2022

Unconfirmed reports have also revealed that 3AC started borrowing from many major crypto players around June, offering stETH as collateral, which means that a lot of 3AC’s funds are used for arbitrage on stETH. However, on-chain data from Nansen shows that 3AC has been the biggest seller of the stETH.

over 2 BILLION gross debt outstanding, only 200mm liquid assets (illiquid one hard to appraise) leaving counterparty (including exchanges) bag holding bad debts

Galaxy, Blockfi, Genesis, FTX, Bitmex all impacted

Binance, Bifinex, Tether, Bybit are the good ones 🫡
— 3AnonCompany (@3AnonCompany) June 18, 2022

Investors are concerned that insolvency among the major crypto platforms will lead to contagion. Last week, lending platform Celsius Network froze withdrawals and transfers between accounts in an attempt to “stabilise liquidity” after the Terra debacle triggered an unprecedented increase in redemptions.

On Saturday afternoon, Singapore-based lending giant Babel Finance announced in a statement that it was temporarily suspending withdrawals and redemptions of crypto assets after “unusual liquidity pressures”.

Solana DeFi platform more “Ce” than “De”

Users of Solana DeFi platform Solend have voted on Sunday to force a takeover of the protocol’s largest account.

According to a Solend Labs, the user has “an extremely large margin position” that is extremely close getting liquidated which will put the protocol and its users at risk.

The user reportedly deposited 5.7M SOL (approximately US$170 million) – over 95% of the pool’s deposit – at a liquidation price of US$22.30. It also borrowed US$108 million in stablecoins. At the time of writing, SOL is trading at US$32.19.

“Letting a liquidation of this size to happen on-chain is extremely risky. DEX liquidity isn’t deep enough to handle a sale of this size and could cause cascading effects”, the Solend Labs team said in a blog post published Sunday.

The proposal will grant “emergency power” to Solend Labs which will enable them to take over the account so that the liquidation can be executed via OTC (over-the-counter) trades, essentially seizing the user’s fund.

“This would be done via a smart contract upgrade. Emergency powers will be revoked once the whale’s account reaches a safe level,” they said.

It seems like when shit hits the fan, centralisation is still required to clean up the mess.

Trading Volume

According to data from CoinMarketCap, the global crypto market cap stands at US$875.48 billion, a 6.97% increase over the last day. The total crypto market volume over the last 24 hours is US$79.28 billion, a 11.16% decrease.

Data from Coinglass shows that 85,752 traders were liquidated since yesterday, with total liquidations coming in at US$309.27 million.

Fear & Greed Index

Risk appetites are really, really sapped – the Crypto Fear and Greed Index currently stands at 9, indicating extreme fear. The index uses 5-6 measurements to assess the current sentiment of the market and then rates that level of emotion on a scale of 1-100 – 1 is extreme fear and 100 is extreme greed.

The index has stayed at this level for numerous weeks now, and it seems like it will remain at this level for some time to come.