Lockdowns and Contagion Are Resetting Crypto

After a relatively quiet period, the markets have crashed and the crypto space is experiencing major turmoil. There was a lull after the Terra/UST collapse, but now the contagion seems to be spreading, and all this is happening during a period of great financial uncertainty.

Celsius and 3AC

Celsius is a comprehensive crypto platform that, among other services, makes it easy to borrow cryptocurrencies. Users can also deposit cryptocurrencies on the platform and receive interest at high rates in return. Additionally, Celsius uses its own token, CEL. It is noteworthy that although Celsius operates for the most part as a decentralized financial application, at its core it is a centralized entity with full control over user accounts.

The current drama comes as Celsius appears to have become dangerously illiquid. Part of the problem is that he used the kinds of methods that may be common among individual DeFi users, but might not be expected from a safe and stable financial service.

These include the use of user deposits as collateral for loans on MakerDAO (a decentralized lending protocol and the creator of the DAI stable token) and the trading of user funds on stETH.

The stETH token is issued in exchange for Ether staked by the Lido platform. stETH is pegged to ETH, but recently the peg slipped, creating selling pressure. Additionally, stETH cannot be redeemed back into ETH until after the Ethereum merger occurs, and there is uncertainty as to when that will happen.

In a bearish price drop situation, if too many users want to get their funds back, Celsius, lacking enough liquidity, is in trouble. In fact, the platform has had to resort to restricting user withdrawals and transactions as it tries to find a way to survive. Surprisingly, it now appears that he may have navigated a path out of the woods, posting the collateral needed to get through liquidation and starting to pay off loans.

Celsius achieving an escape, if that were to happen, seemed like it would prevent further tremors, until currently unsubstantiated rumors began to surface, at the time of writing, that speculated that influential crypto fund Three Arrows Capital could be facing insolvency, causing more concerns, while BTC and ETH prices fall again.

It could be argued that precarious operations are par for the course in the crypto frontier of the Wild West, but current developments are happening at scale. Also, the narrative lately has been about more mainstream crypto adoption, which cannot match the image of recklessness that is being leaked.

Deployment of macro elements

The plot revolves around Terra, Celsius, and now possibly Three Arrows, they are major aftershock triggers and ripple effects, which may affect prices, but are foreground details in the larger macro context. And, on this larger scale, the story unfolds with constant inevitability.

Globally, economies have been severely damaged by state-forced lockdowns and ongoing supply chain disruption, and to control runaway inflation, interest rates have been raised and the money supply has been squeezed. There is debate over whether the US economy is in or about to enter a recession, but either way, no one can be sure how long this economic phase will last, which means the main option seems to be to continue ahead. out until the outlook improves.

As a result, we have our current market crash, which is killing tech stocks and cryptocurrencies in particular. Have we already seen the crypto bottom, and furthermore, can bitcoin (and perhaps a very small number of other cryptocurrencies) ever decouple from other markets and provide a safe haven?

The previous question, that of the formation of a bottom, seemed plausible, but there is still a possibility that more crypto organizations could implode and cause price drops. The latest topic, a bitcoin decoupling, has not occurred this cycle, but remains a future possibility.

Return to basic

Amidst the chaos of market contagion, with some major players looking fragile and ill-prepared, and all within the context of a major macro correction, a return to first principles may pay off.

It has been said that every crypto crisis spawns new bitcoin maxis, realizing that messing with altcoins and convoluted DeFi protocols can be distracting and temporarily profitable, but that bitcoin itself is both revolutionary and secure at the same time.

Certainly, no matter what organizations collapse, or execute unlikely escape plans and get by, one thing that will remain, simple and working, as it always has been, is Bitcoin.

What advice could a maxi hand out, at this point? Most likely, the same as at any other time in the history of Bitcoin: do not get distracted, accumulate BTC, have your own keys. And, if you want to go further, consider running your own Bitcoin node.

At the same time, however, the more recent crypto cycle, via NFTs and the web3 trope, has sucked in entrants from previously distant spheres, including art, photography, and music, a significant number of whom will stay and they will continue to work, having tuned in to the benefits of decentralized digital sovereignty.

Despite the noise, and from a distanced perspective, this crypto crash and the rebalancing that follows can feel less like a catastrophe and more like a creatively destructive reset. One thing that is clear this time is that there are no bailouts in crypto, and the outlook after the storm will be instructive.

After a relatively quiet period, the markets have crashed and the crypto space is experiencing major turmoil. There was a lull after the Terra/UST collapse, but now the contagion seems to be spreading, and all this is happening during a period of great financial uncertainty.

Celsius and 3AC

Celsius is a comprehensive crypto platform that, among other services, makes it easy to borrow cryptocurrencies. Users can also deposit cryptocurrencies on the platform and receive interest at high rates in return. Additionally, Celsius uses its own token, CEL. It is noteworthy that although Celsius operates for the most part as a decentralized financial application, at its core it is a centralized entity with full control over user accounts.

The current drama comes as Celsius appears to have become dangerously illiquid. Part of the problem is that he used the kinds of methods that may be common among individual DeFi users, but might not be expected from a safe and stable financial service.

These include the use of user deposits as collateral for loans on MakerDAO (a decentralized lending protocol and the creator of the DAI stable token) and the trading of user funds on stETH.

The stETH token is issued in exchange for Ether staked by the Lido platform. stETH is pegged to ETH, but recently the peg slipped, creating selling pressure. Additionally, stETH cannot be redeemed back into ETH until after the Ethereum merger occurs, and there is uncertainty as to when that will happen.

In a bearish price drop situation, if too many users want to get their funds back, Celsius, lacking enough liquidity, is in trouble. In fact, the platform has had to resort to restricting user withdrawals and transactions as it tries to find a way to survive. Surprisingly, it now appears that he may have navigated a path out of the woods, posting the collateral needed to get through liquidation and starting to pay off loans.

Celsius achieving an escape, if that were to happen, seemed like it would prevent further tremors, until currently unsubstantiated rumors began to surface, at the time of writing, that speculated that influential crypto fund Three Arrows Capital could be facing insolvency, causing more concerns, while BTC and ETH prices fall again.

It could be argued that precarious operations are par for the course in the crypto frontier of the Wild West, but current developments are happening at scale. Also, the narrative lately has been about more mainstream crypto adoption, which cannot match the image of recklessness that is being leaked.

Deployment of macro elements

The plot revolves around Terra, Celsius, and now possibly Three Arrows, they are major aftershock triggers and ripple effects, which may affect prices, but are foreground details in the larger macro context. And, on this larger scale, the story unfolds with constant inevitability.

Globally, economies have been severely damaged by state-forced lockdowns and ongoing supply chain disruption, and to control runaway inflation, interest rates have been raised and the money supply has been squeezed. There is debate over whether the US economy is in or about to enter a recession, but either way, no one can be sure how long this economic phase will last, which means the main option seems to be to continue ahead. out until the outlook improves.

As a result, we have our current market crash, which is killing tech stocks and cryptocurrencies in particular. Have we already seen the crypto bottom, and furthermore, can bitcoin (and perhaps a very small number of other cryptocurrencies) ever decouple from other markets and provide a safe haven?

The previous question, that of the formation of a bottom, seemed plausible, but there is still a possibility that more crypto organizations could implode and cause price drops. The latest topic, a bitcoin decoupling, has not occurred this cycle, but remains a future possibility.

Return to basic

Amidst the chaos of market contagion, with some major players looking fragile and ill-prepared, and all within the context of a major macro correction, a return to first principles may pay off.

It has been said that every crypto crisis spawns new bitcoin maxis, realizing that messing with altcoins and convoluted DeFi protocols can be distracting and temporarily profitable, but that bitcoin itself is both revolutionary and secure at the same time.

Certainly, no matter what organizations collapse, or execute unlikely escape plans and get by, one thing that will remain, simple and working, as it always has been, is Bitcoin.

What advice could a maxi hand out, at this point? Most likely, the same as at any other time in the history of Bitcoin: do not get distracted, accumulate BTC, have your own keys. And, if you want to go further, consider running your own Bitcoin node.

At the same time, however, the more recent crypto cycle, via NFTs and the web3 trope, has sucked in entrants from previously distant spheres, including art, photography, and music, a significant number of whom will stay and they will continue to work, having tuned in to the benefits of decentralized digital sovereignty.

Despite the noise, and from a distanced perspective, this crypto crash and the rebalancing that follows can feel less like a catastrophe and more like a creatively destructive reset. One thing that is clear this time is that there are no bailouts in crypto, and the outlook after the storm will be instructive.

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