The crypto market continues to act nervously and bitcoin is trading close to 19K. In this article, I describe a few events that lead to an extreme fear environment in crypto land.
*SEC officially rejected Grayscale’s Spot Bitcoin ETF Application yesterday.
*Three Arrows Capital (3AC) once a 18 billion dollar crypto hedge fund, has been ordered to liquidate its assets by a British Virgin Island court and is now officially bankrupted. It is likely that 3AC is contributing to the sell pressure in the market due to it forced liquidation.
*After the Terra Luna stable coin collapse, there are growing concerns that the biggest stable coin Tether with 66 billion dollar in market cap will no longer be able to maintain it’s 1 tot 1 peg to the US dollar. Many big hedge funds are currently shorting the Tether USDT in anticipation for another stable coin depeg event in the coming period.
*Many Bitcoin miners are selling their mined bitcoin in order to pay debts which puts additional selling pressure in the market
So the market is currently consolidating due to high extreme fear of a cascading effect that will result in more liquidations. CZ, CEO Binance compares the current liquidation situation to past liquidation events by drawing a distinction between two types of leverage within the crypto ecosystem: Fast, and slow.
“Fast leverage is often related to futures products trading on centralized exchanges. If there’s any kind of liquidation cascade, it tends to begin and end very quickly with this leverage. For example, on March 12th, 2020, Bitcoin crashed from $8000 to $3000 in a single day due to this leverage but quickly recovered.
On the other hand, today’s market seems to be plagued by slow leverage – where funds lend to other funds and defi protocols to invest. The cascading effect of this leverage can often spread much more slowly, while also taking longer to admit to by troubled platforms. I believe we have not seen the end of these yet, concluded CZ”.
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