Digital asset markets continued to crater Wednesday, with the price of bitcoin
testing psychologically significant level of $20,000 — and there is little sign of respite for weary crypto traders.
Here are 4 signs that more trouble is to coming for crypto markets:
1. Rumors swirled over potential stress at the influential hedge fund Three Arrows Capital, following a vague tweet from its founder Zhu Su late Tuesday.
A major player in decentralized finance (DeFi) markets, a corner of the crypto world where traders often seek to earn money on leveraged crypto and where so-called smart contracts can force liquidations in times of market stress, Su has publicly talked up his investments in a token called “staked ether,” which has come under stress in recent days.
On Wednesday, the Block reported that Three Arrows is “in the process of figuring out how to repay lenders and other counterparties after it was liquidated by top tier lending firms in the space.” Zhu Su did not respond to a request for comment made by MarketWatch via Telegram.
2. The world’s most popular stablecoin, tether
saw its peg to the dollar wobble again Wednesday as traders continued to redeem their tokens in recent days.
In a blog post Wednesday, Tether dismissed what it called “false rumors” about the reserve fund it keeps to back up token and maintain the one-to-one peg.
“Tether is aware of rumours being spread that its commercial paper portfolio is 85% backed by Chinese or Asian commercial papers and being traded at a 30% discount,” the company said on its website.
“These rumours are completely false and likely spread to induce further panic in order to generate additional profits from an already stressed market,” it added. “Tether condemns such attempts which oftentimes see simple users take the biggest hit, while few coordinated funds increase their profits.”
Stablecoins are a type of cryptocurrency that seeks to maintain a one-to-one peg with the U.S. dollar
and are used to shield crypto holdings from large swings in the value of digital assets.
The crypto world was rocked in May when the algorithmic stablecoin TerraUSD broke its peg before the Terra blockchain was briefly halted, and tether once deviated from its $1 peg on many exchanges, though the company denies that the dollar peg was broken.
3. Another algorithmic stablecoin, Decentralized USD, which operates on the Tron network, also saw its value slip below $1 in recent days, despite efforts to back it up with reserves of other cryptocurrencies including tether Circle’s stablecoin USDC and Tron’s native token TRX.
The Tron Dao Reserve, which oversees the stablecoin, said on Twitter Wednesday that it had withdrawn hundreds of millions of dollars worth of TRX from its account at Binance “to safeguard the overall blockchain industry and crypto market.”
4. Crypto lender Celsius Network LLC has reportedly hired restructuring attorneys from law firm Akin Gump Strauss Hauer & Feld LLP to advise it after the company told users that it was pausing all withdrawals, swaps and transfers between accounts, “due to extreme market conditions.”
The situation at Celsius is seen as weighing on crypto prices, though that could be do more to its impact on sentiment rather that because of its direct holdings of popular cryptocurrencies, according to Marc Arjoon, research associate at CoinShares.
“I believe Celsius custodies 0.7% of Bitcoin,” he told MarketWatch in a telephone interview. Celsius announced in April that it holds over 150,000 bitcoin. The cryptocurrency currently has a circulating supply of around 19 million, while it’s supply cap stands at 21 million.
“I think it could be serious for Celsius, but I don’t think this is an existential threat by any means to the crypto markets,” Arjoon said.