Celsius effectively locked up its $12 billion in crypto assets under management, raising concerns about the platform’s solvency. The news rippled through the crypto industry, somewhat reminiscent of what happened in May, when a failed US dollar-pegged stablecoin project lost $60 billion in value and swept the broader crypto industry.

Celsius was known for providing users with returns of up to 18.63% on their deposits. It’s like a product that a bank would offer, but without the legal safeguards.

Those insanely high yields eventually came under scrutiny.

“This risk certainly seems like just the beginning,” said John Todaro, vice president of crypto assets and blockchain research at Needham.

“What I would say is on the decentralized side – a lot of these DeFi protocols, a lot of those positions are over-collateralised, so you shouldn’t quite see the underfunding situation that could happen with centralized borrowers and lenders. But that said. “You could still see a lot of liquidations where that collateral was sold on DeFi protocols,” Todaro continued.

Crypto markets appeared to stabilize on Tuesday, with bitcoin hovering around $22,000 and ether around $1,100.

Investors were assessing the fallout from Celsius and meanwhile, another crypto company joined a growing list of companies cutting staff to try to increase profits.

“We had the recent inflation report that surprised a lot of people, I think,” explains President and Chief Operating Officer Emilie Choi.

“We’ve had Jamie Dimon and others talk about an impending economic hurricane and given what’s happening in the economy it feels like the most sensible thing to do now,” Choi continued.

Crypto firms across the board are looking for ways to cut costs as investors abandon the riskiest assets, driving down trading volumes.

MicroStrategy has used corporate debt to buy bitcoin, and in March Saylor decided to take another step toward normalizing bitcoin-backed funding when he borrowed $205 million with his bitcoin as collateral — then bought more of the cryptocurrency. .

“We have $5 billion in collateral. We borrowed $200 million. So I’m not telling people to take a high leverage loan. What I’m doing, I think, is doing my best to lead the way and the bitcoin-backed finance industry,” said Saylor, adding that publicly traded crypto miner Marathon Digital also closed a line of credit with Silvergate Bank.

When bitcoin prices plummeted this week, investors feared the company would be asked to provide more collateral for its loan, but Saylor said the fears were overblown.

“The margin call is a lot of fuss about nothing,” Saylor told CNBC earlier this week. “It just made me famous on Twitter, so I appreciate that… We feel like we have a strong balance sheet, we’re comfortable and the margin lending is well managed.”

Then, on Wednesday afternoon, the Federal Reserve raised its benchmark interest rate by three-quarters of a percentage point in its most aggressive hike since 1994. The Fed said the move was made in an effort to curb skyrocketing inflation.

Crypto prices initially rose on the news as investors hoped we could avoid a recession, but that rally was short-lived.

Thursday we were in the red again. Bitcoin fell to around $20,000, to prices it hadn’t seen since late 2020.

The losses were closely linked to a sell-off on Wall Street, with the Dow falling 700 points to its lowest level in more than a year.

It seems investors cannot shake fears of a recession, with some saying it may take time for cryptocurrencies to recover from the sell-off of riskier assets.

“I think we’ve taken the elevator down, and I think, as an industry, we need to take the stairs back up and climb out of it by building real utility,” she said.

Gunter said what we’re seeing in many ways is a “healthy washout.”

“One doesn’t want, as a builder, as a long-term investor… to be in a market where it’s driven by only short-term price action, by speculation, like, let’s face it, the cryptocurrency market has largely been in recent years. been,” Gunter continued.

The carnage in the crypto markets shows no signs of slowing down as bitcoin and ether continued their sell-off on Saturday afternoon at a brisk pace.

This is because crypto hedge funds and companies face increasing insolvency questions.

“In some ways, this is just an age-old story. You borrow short and borrow long. And I’m really sorry that people lost money, and I think in some ways it’s going to reduce space, because you’re going to have some early adopters lose or part of the humans who have just arrived new in space,” Cascarilla continued.

But Cascarilla also says that investors are still looking for high-quality crypto investments.

“The fundamental technology here and the adoption curve that we see, the institutions that come in, how to run your financial system at the speed of the Internet, those are things that need to happen,” he said.