We’re going to explain a few reasons behind Bitcoin’s worst quarter in 10 years. We take a look at the reasons behind Bitcoin’s decline and the causes of this crypto financial crisis we are witnessing.
Bitcoin, which lost approximately 58 percent in the second quarter of 2022, recorded its worst quarter performance since 2011.
Popular cryptocurrency Bitcoin has had its worst quarter performance and worst month since 2011.
According to CNBC’s report, the world’s largest cryptocurrency lost about 58 percent in the second quarter of 2022. About $1.2 trillion has been wiped out from the entire cryptocurrency market.
The market crash and chaos caused crypto companies to lay off many of their employees and consolidate the industry through acquisitions.
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So what are the reasons for the great losses in the crypto market and Bitcoin?
According to experts, after the declines in the past months, the desire of the crypto money market to gain upward momentum to compensate for the losses in May is also one of the factors in the declines. Bitcoin, which has been moving in a very narrow range for weeks, was not very well affected by this process, and many factors such as the continuation of the war in Ukraine, the increase in inflation, and the decrease in stock prices were effective at the same time. All this increased the concerns that the FED would make a tighter monetary policy decision.
1- MACROECONOMIC PRESSURE
During the quarter, the US Federal Reserve (Fed) made two aggressive rate hikes to combat high inflation. The move raised recession concerns both in the US and elsewhere.
Stocks, including the shares of fast-growing tech giants such as Tesla, Amazon and Microsoft, were adversely affected by the current situation. The technology-heavy Nasdaq index fell 22.4 percent in the second quarter, recording its worst quarter performance since 2008.
Fluctuations in Bitcoin are closely related to the price movements of US stock indices. As such, stock sales have led to a decline in the Bitcoin and crypto market as investors abandon risky assets.
2- TERRAUSD CRISIS
The first major event last quarter was the collapse of stablecoin TerraUSD (UST), which sent a shock wave to the industry, and LUNA, which was launched to stabilize its price.
There has been a serious selling pressure in cryptocurrencies as investors want to move away from risky assets. Afterwards, the decline in UST, which is among the largest stablecoins in the market, brought about sudden interventions.
The Luna Foundation (LFG), responsible for maintaining the stability of the UST, has divested its Bitcoin reserves to push the price higher. However, the target of UST to be fixed to 1 dollar could not be met and panic atmosphere engulfed the market.
The collapse in question had a knock-on effect on the market, with both Bitcoin and altcoins seriously depreciating, and this collapse particularly shook the cryptocurrency fund Three Arrows Capital.
3- CELSIUS STOPPED WITHDRAWALS
Cryptocurrency lending platform Celsius Network stopped its customers’ withdrawals in June. The company has offered its clients over 18% returns if they invest in crypto using Celsius. The platform then lent this money to actors willing to pay a high interest rate.
However, the drop in prices put this model to the test, and Celsius cited “extreme market conditions” as the reason for pausing withdrawals.
The platform said on Thursday it had taken “significant steps to conserve and protect assets and explore the options at hand.” Among these options, it was stated that debt restructuring is also included.
After the developments, Celsius’ own token CEL fell more than 70 percent, and the value of Bitcoin also fell.
Celsius’s troubles revealed the weaknesses of the credit models used in the crypto money market, which promise high returns.
4- LIQUIDATION OF THREE ARROWS CAPITAL
The bankruptcy of Three Arrows Capital (3AC), one of the largest money funds focused on cryptocurrency investments, after interest rate increases and the problems faced by TerraUSD and Celsius, deepened the collapse.
It was announced that 3AC, which was founded by Zhu Su and Kyle Davies in 2012 and known for its high leveraged bets, would first be liquidated due to its inability to meet its debt obligations, and then the bankruptcy announcement came to the fore.
The Financial Times reported last month that crypto financial services groups BlockFi and Genesis are liquidating some of their positions due to 3AC’s failure to respond to its margin call.
Upon the application of the company’s shareholders in the British Virginia Islands, the liquidation decision was taken at the end of June. Following the development, Voyager Digital took action for its claims on 3AC. 3AC defaulted on a loan of more than $660 million from Voyager Digital.
The state of 3AC has revealed the high indebtedness of the market.
5- COINFLEX – “BITCOIN JESUS” DISCUSSION
Cryptocurrency exchange CoinFlex stopped withdrawals last month, citing “extreme market conditions” and a client’s account that went into negative equity. The platform claimed that crypto investor Roger Ver, known to the public as the “Bitcoin Jesus”, owes the company $47 million and therefore has liquidity problems. Ver denied the allegation.
Although the platform says that the positions of an account that normally goes to negative equity will be liquidated, there is an agreement between the parties that prevents this.
CoinFlex has launched a new token called Recovery Value USD (rvUSD) to solve its problems. The platform offers a 20 percent interest rate to investors who want to buy and hold digital money.
The company’s CEO, Mark Lamb, said this week that they were talking to bad debt funds to purchase the token.
The discussion between Ver and CoinFlex indicates that the chain crash effect may continue in the market, which has experienced major depreciation.
Hello there! My name is Oktay from Tokensboss editors. I introduce myself as a business graduate and writer. I have been doing research on cryptocurrencies and new business lines for over 2 years.