The current plunge in cryptocurrencies is largely linked to tighter U.S. monetary policy and rising inflation. The collapse of Terra and Celsius does not have a direct effect on traders’ sentiment, but it risks shuttering projects tied to these ecosystems, and it hits stablecoins.
ForkLog spoke with experts about the near-term prospects for the market.
Andrey Velikiy, founder of Allbridge:
The core problem with the Terra and Celsius collapses is that they primarily hit retail investors. In Terra’s LUNA and in Anchor, a lot of people lost money. In light of this, we read news that institutional players managed to withdraw funds from Anchor, and shifted into Bitcoin. How this happened raises questions.
Celsius – the same story entirely; retail is suffering again. I don’t know what’s going on with the big players, though we see funds moving from their addresses to FTX, for what purpose — unknown. As a result, people will be greatly disappointed that they can, say, build their own personal pension fund in crypto, because they have lost there and there; they will turn to non-crypto, more regulated, more understandable banking tools.
In Terra and Celsius, there is a sense of a coordinated attack on stablecoins, because initially an algorithmic UST was introduced that seemed decentralized and not bank-connected. Celsius is indirectly or directly connected to Bitfinex and USDT, and on this backdrop it wobbles a bit. Parallel to this, USDD by Justin Sun is wobbling as well. It feels as if we are being prepared for the idea that all crypto stablecoins are bad, and that instead they will offer some centralized banking currency on the blockchain.
The market is collapsing and is clearly in a bear phase. This is generally bad, but in practice it also means difficulties for crypto teams that did not liquidate in time and did not form reserves in stablecoins. We are already seeing a wave of layoffs and a pause in hiring.
Projects may potentially collapse, especially those whose protocols were tied to Terra or Celsius in some way. As we know, there were already would-be partners looking to engage with them; this hit their business as well: they will not be able to pay out money, lose depositors’ trust, and shut down — a cascade of problems.
This will also affect those not directly involved, simply because the market is collapsing. We see Ethereum, which recently traded above $4,000, then around $2,800 at the time of LUNA’s collapse, is now around $1,200. How many people and projects stored in ETH, and how many liquidations on Maker will we see — unclear.
So the situation on all fronts is bad. I can’t confirm or deny the rumors that Alameda Research systematically profits from all of this. But I have an inner sense that as long as someone big is crushing the stablecoins and profiting from shorts, retail investors suffer first.
This is very bad, because it will likely take a year or two before they regain faith in cryptocurrencies as a financial instrument and start returning.
Vladimir Nosov, CEO WhiteBIT:
Based on the overall picture in the financial markets, as well as acute geopolitical risks, I expect the market to continue its decline, in some cases to zero.
After the recession, we will see the true face of real assets and the full dawn of a new financial paradigm.
Sergey Mendeleev, CEO of Indefibank:
Terra has long since played out; it is not currently affecting the crypto market. Celsius is still alive, but its impact on the market is far smaller than Terra’s, although there is a nuance in its relationship with USDT.
Nevertheless, this is all peanuts compared to the impact of Fed decisions of the US Federal Reserve and inflation figures approaching double digits amid unprecedented measures to cool markets.
Clearly, the measures are insufficient and at the next meeting, on June 15, hawkish sentiment from participants may be heard, which could lead to even bigger blows to the main indices and could be the final step toward a recession in world markets.
And, of course, various FTX-Alameda Research add fuel to the fire, pushing prices toward major liquidations and contributing to the imbalance of pools that underpin the crypto economy — stablecoins. In my view, this will not end well, and we may see a repeat of March 2020.
Grigory Klumov, founder of the stablecoin platform Stasis:
The slide in cryptocurrencies has intensified as margin positions are liquidated on both centralized and decentralized venues. Fear is amplified by potential bankruptcies of major counterparties such as Celsius and MicroStrategy.
Perhaps Tesla’s board of directors and other balance-sheet Bitcoin holders will force management to put this asset on the market, since these positions have already accrued substantial paper losses.
Furthermore, inflation data in the United States triggered a cascade of bond sell-offs across all maturities. Tech stocks and the broad S&P 500 also fell. This happens against a backdrop of a strengthening dollar as a funding currency. Thus, the market is undergoing a broad unwinding of margin positions. Investors of all types, including mutual funds and private investments, as well as HNWI, who bought both traditional and alternative assets on borrowed money, are now selling them off and returning loans.
The nearest level at which Celsius positions were to be liquidated was $23,000 per BTC. However, on the night of June 14 they added collateral, shifting the liquidation level down by $2,000–$3,000. The level at which MicroStrategy positions would be liquidated is $22,000 per BTC. This is what we know about public and semi-public companies.
One thing is certain: the $20,000–$21,000 levels will become critical when a huge number of margin positions are liquidated, and the market under liquidation pressure could briefly fall to $17,000–$18,000.
This could become an excellent entry point for conservative investors who held cash in their portfolios and properly assessed the risk of such situations.
Mikhail Chobanian, founder of Kuna Exchange:
Turmoil is still ahead. We await a drop in the financial markets, sovereign defaults, fiat currency hyperinflation, and don’t forget about someone with a finger on the nuclear button. The future still lies ahead, unfortunately.
Lili Zhang, Chief Financial Officer of Huobi Group:
In the short term, the market will stay volatile. We should prepare for new liquidations that will amplify the downtrend, which we are already seeing in stETH.
As an optimistic note, while selling pressure on stETH continues to grow, demand on secondary markets will rise. This, in turn, will make stETH more accessible to new investors, which will in turn boost demand and bring prices back to normal.
In the long run, this market volatility could become an opportunity to earn arbitrage profits and potential future income. We believe stETH is sufficiently resilient to withstand short-term shocks. The upcoming ETH 2.0 merge could also help restore market prices and demand to normal levels in the long run.
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