May and June 2022 will be remembered as the time when the crypto market experienced one of the worst falls in its history. If the losers are many, the winners could appear in future innovative projects.
How to describe the collapse of cryptocurrencies? Far from its all-time high of nearly $67,000, bitcoin is now trading around $20,000. The total capitalization of the market, which was approaching 3000 billion dollars, is now struggling to exceed the 1000 billion mark, a symbol of a serious loss of confidence. Far from the most ambitious projections, which relied on an upward cycle for these assets, the failure of certain projects has highlighted the limits of these new technologies and their inability to impose themselves as a safe haven.
At the origin of this crash, the Terra Luna affair. In a few days, the price of the Luna token lost almost 100% of its value, falling from around 80 dollars to only a few cents. The reason for this brutal fall is to be found in the other currency of the ecosystem, the Terra, a stablecoin. Stablecoins are meant to be non-volatile assets, with a token needing to be worth a dollar to run the system. Unfortunately, following a mass liquidation of several wallets and a faulty algorithm, the stablecoin associated with the Terra blockchain could not hold the principle of a coin for a dollar, dragging in its fall the Luna project all entire.
Several investment funds close to bankruptcy
Until a while ago, Terra Luna was among the most watched and anticipated projects in the entire ecosystem. Its failure put a massive damper on an already mired market. Since then, confidence no longer seems appropriate, and investors have become much more cautious. In fact, a number of cryptocurrency investment funds held some of their cash in Terra Luna.
This is the case of Three Arrow Capital, co-founded by Zhu Su, a cryptocurrency entrepreneur who has more than 560,000 followers on Twitter and who defended the thesis of a “super bull cycle”. The investment fund, which managed more than $3 billion in assets, is now struggling with its various partner companies and risks bankruptcy.
Celsius Network, a cryptocurrency lending platform, is also having a hard time. While the company was still offering annual returns of more than 18% a few months ago, this promise has proved impossible to keep in the current context. The company has since frozen all assets under its management, amounting to no less than $12 billion. The risk of bankruptcy of the American company could deal another devastating blow to the crypto ecosystem.
One could add to the long list of losers individuals who invested at the wrong time, after taking the advice of so-called crypto “experts” ready to sell the Moon to boost their view counter. But these significant turmoil could well allow other players to do well.
A crypto saviour?
The founder of the FTX platform, Sam Bankman-Fried, tries to assume the role of “savior” of the ecosystem. By buying up troubled companies and lending hundreds of millions of dollars to others, the boss of FTX is expanding his control. When he announced his partnership with a struggling company, BlockFi, the young billionaire explained on Twitter “take seriously our duty to protect the digital asset ecosystem and its consumers“.
The survivors of this crash could become the future behemoths of the sector. Indeed, while the price of cryptocurrencies is collapsing, a number of projects continue to raise millions of dollars, such as FalconX, Magic Eden or the A16z investment fund. “As a bear market veteran, I can tell you that there is no better time to build than now.“, explained on Twitter the technical director of Magic Eden, Sidney Zhang.
Investors becoming more cautious and fewer followers, projects around Web3 and blockchain could have the opportunity to develop healthier, away from opportunists. Ultimately, this crash could allow the entire ecosystem to fix technical issues and deliver innovation without pressure from investors rushing for a financial return. Can we believe in a new beginning?