Distrust takes control of cryptocurrencies in the midst of a price crisis

Cryptocurrencies have lost a trillion dollars in capitalization in the midst of the downward trend that has dragged on in recent months and that shows its correlation with other equity assets. But also, his collapse is exacerbated by a crisis of confidence that shakes an alternative system that until now worked thanks to the faith between the parties involved. Following the crash of terraUSD, which cast doubt on the reliability of stablecoins, the decision of the Celsius platform to suspend the withdrawal of funds threatens to trap investors without protectionas cryptocurrencies are unregulated assets.

Since Celsius Network, a platform that has nearly $12 billion in assets under management, announced a playpen -has suspended “all withdrawals, exchanges and transfers between accounts”-, the ‘cryptos’ have erased almost 140,000 million dollars in capitalization. Total, the value of all active ‘tokens’ is already less than 970,000 millionmore than half than at the beginning of May, when the Fed began raising rates in the US, and barely a third of the maximum value recorded in November 2021, when it was close to three trillion dollars.

The falls began last Friday, following the trend of other assets such as equities or fixed income. However, sales have become massive in recent hours due to the systemic risk that a bankruptcy of Celsius Network. The platform allows its users to use their crypto assets as collateral to finance your projects, while, in turn, lending those assets. The liquidation that hits the ‘cryptos’ in recent weeks has stressed its ability to meet its obligations until he finally decided to activate a clause in his Terms of Use that allows him to suspend the activity of his clients in his system.

The Celsius token has plummeted almost 50% in just one day. But, in addition, another of the cryptocurrencies that suffers the most punishment is the ethereum. The second most widely used digital currency is trading below $1,300, the lowest since January 2021, due to Celsius’s exposure to the ether-linked steth token. Specifically, it was seeking parity with the Ethereum blockchain token to reward investors, but the loss of that parity caused a massive liquidation. The falls extend to other cryptocurrencies. The bitcoin, which represents more than half of the value in the market, has lost almost 15% of its value in just one day and is already trading below $24,000, its lowest value since December 2020.

In an attempt to give confidence to the system, the decentralized lending platform Nexo has offered to buy Celsius assets to protect users and avoid a liquidity crisis in the sector. In the letter published on Twitter that collects the offer, it does not mention the acquisition price, although it puts an expiration date: it will be valid until June 20.

However, the offer is only a patch to the uncertainty that hits the market. Along with Celsius, Binancethe cryptocurrency trading platform and infrastructure provider, has also temporarily suspended withdrawals via the bitcoin (BTC) network. The reason is a “jam” of one of the batches processed. “An earlier batch of transactions stalled due to low transaction fees submitted and thus resulted in a backlog of refunds from the Bitcoin (BTC) network,” the company explained. The problem, which was supposed to be fixed in 30 minutes at first, finally takes “a little longer to fix.”

Regulator pressure

Doubts about the solvency of the crypto market accumulate and once again show the lack of regulation and, therefore, of protection, which the system suffers. But it has not been the last crisis for a sector that is gradually losing the confidence of investors. The crash of terraUSD revealed stablecoin flawswhose purpose is precisely to minimize volatility by linking its price, at par with the dollar, with a supposedly stable asset that supports it, and are key to providing liquidity to the cryptocurrency market.

A solvency crisis of crypto platforms leaves thousands of investors without protection against the deregulation that characterizes these assets. The strong sell-off in recent weeks has led regulators and central banks to warn of their risks. The last, Andrew Bailey, Governor of the Bank of England, who has warned crypto investors to prepare to lose all their money. “People may still want to buy them because they have extrinsic value… people value things for personal reasons. But they have no intrinsic value. This morning we have seen another outburst on a cryptocurrency exchange.”

For now, beyond the warnings, only the US Securities and Exchange Commission (SEC) has entered to investigate possible crimes in the collapse of Terra and its UST token. Specifically, they are directed against the founder of Terra, Do Known, and the company Terraform Labs, which could have infringed the rules on securities and investment products.

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