Crypto traders turn against each other in a collapsing market

Olga Kharif, Bloomberg News

With crypto prices tumbling precipitously, traders have begun increasingly turning against one another to eke out ever-elusive profits.

Many shark traders scour blockchains -- digital ledgers for recording transactions -- seeking information on other traders, particularly those with highly leveraged positions, an anonymous user known as Omakase, a contributor to the Sushi decentralized exchange, said in an interview. 

The sharks then attack the positions by trying to push them into liquidation, and earning liquidation bonuses that are common in decentralized finance (DeFi), where people trade, lend and borrow from each other without intermediaries like banks.

Related strategies may have contributed to the collapse of the TerraUSD stablecoin, with shark traders making money off price arbitrage between the Curve decentralized exchange and centralized exchanges, according to Nansen, a blockchain analytics firm. 

Recent troubles at crypto lender Celsius Network were exacerbated by arbitragers as well. The price of stETh token that Celsius has a large position in started trading at a large discount from Ether, to which it’s tied. 

“As stETH goes down, arbitragers buy stETH and short ETH against it, sending ETH lower, which again lowers collateral values across DeFi,” effectively worsening Celsius’s position, according to a recent Arca note.

As Omakase put it, “In a downtrend environment, where yields are harder to access, what we are going to see is some actors utilize some more aggressive strategies, and that may not be necessarily good for the community.”  

“The environment has become more player vs player,” Omakase added.

With crypto prices under pressure, taking on leverage has presented an even greater peril. Last year, Sushi launched a margin-trading and lending platform. Most crypto exchanges offer margin trading, and in the past it has been as high as 100X, meaning that people were able to borrow 100 times what they put down as collateral. 

Most DeFi apps require traders to overcollateralize, however -- effectively taking out less in loans than they put in.

DRIVING DOWN THE PRICE

A trader may find out that others could get liquidated when a coin’s price drops to, say, US$100. The trader could then build up a sufficient position in the coin, then sell in order to pull the price below US$100, while also collecting the reward for liquidating the trader that most DeFi apps offer. 

“Most protocols offer a 10-15 per cent liquidation fee,” Omakase said. “Triggering enough liquidations would cause a liquidation cascade where a motivated actor could simply hold a short position in order to profit for the subsequent secondary decrease.”

Other traders are simply profiting off liquidations they don’t trigger. Nathan Worsley runs a slew of bots -- software programs -- that search for traders who are about to get liquidated and gets paid a commission for liquidating them. 

“Recently the amount of liquidations has been huge,” Worsley said in emails. “However, liquidations is not a continuous strategy, you sometimes go for a week or more without any significant liquidations. However, when liquidations happen there are usually a lot at once. You basically have to work a long time while making US$0 profit, in order to be ready for the big day or two when you might be able to make a million dollars at once.” 

His bots continuously scour blockchains, keeping a list of all the borrowers using a particular app and scrutinizing the health of their accounts. Once positions are ready for liquidation, “it’s usually a battle to be the quickest and perform the liquidation,” Worsley explained. 

“I would push back on classifying this as an ‘attack,’” he added. “The reason is because without liquidations, you can’t have a lending market. So even though no one enjoys being liquidated, it’s essential that people do get liquidated in order to make the market and protect the protocol from insolvency.”

Liquidations can be triggered after traders borrow from apps like Aave or Compound, and put up collateral -- say, in Ether -- that’s typically greater than what they borrow, perhaps 120 per cent of the borrowed funds. If Ether’s price drops, that collateral may now be worth only 110 per cent of what the trader borrowed.

'PROTECT THE PROTOCOL'

“My job as the liquidator is to protect the protocol by closing your position,” Worsley said. “The protocol gives me a reward for being a liquidator to encourage this activity, because blockchains cannot move by themselves. You have borrowed US$1,000 of Bitcoin, so I repay the US$1,000 of Bitcoin you owe the protocol. In return, the protocol gives me US$1000 of your Ethereum collateral, plus a US$100 ‘liquidation bonus’ from your excess collateral. I have made a profit, you have been liquidated and your position is closed, and the protocol itself has been protected from bad debt.”

With liquidation targets becoming more and more tempting in a tumultuous market, Omakase offers this advice: “Generally everyone should stay safe, everyone should avoid the use of leverage.”

Bloomberg Businessweek: Ethereum mining is about to disappear, miners are not happy

CoinYuppie • 2022-06-17 10:23 • Ethereum News

The shift from “Proof of Work” to “Proof of Stake” will drastically reduce power consumption and allow some expensive technology to find new uses.

Mikel-Angelo Chalfoun, an ethereum miner, stores his graphics cards in a warehouse in Dubai.

The Ethereum mining community is a diverse group, both geographically and demographically. A 28-year-old translator in Ukraine runs some computing hardware on his balcony to earn cryptocurrency so he can buy clothes and other necessities. In Argentina, a retiree used her gaming computer to double her monthly pension. A college student in Canada has dug up enough money to buy a BMW motorcycle and a modified 2006 Dodge Charger SRT – and pay for gas every month.

Even many outside the blockchain world know that the collapse of the cryptocurrency market has made the past few months quite painful for anyone whose financial situation is tied to a currency. The price of ethereum is down about 70% this year as of June 15. At the same time, a little-known factor (a tectonic shift known as the Ethereum “merger”) will end Ethereum mining entirely, cutting off the income of as many as 1 million people. “It would be a huge economic blow, almost completely depriving the original miners of a good source of income,” the Ukrainian translator said. (He asked to remain anonymous for fear of being robbed.)

Bitcoin and Ethereum, the two largest cryptocurrency networks by market capitalization, both use a procedure known as “proof of work” to record transactions, in which so-called miners use computer resources to solve difficult mathematical problems, converting transactions Blocks are added to the public ledger. Miners receive payment in cryptocurrency as a reward. Bitcoin mining, which usually involves specialized equipment, has been industrialized; as mining has moved to data centers, the participation of ordinary people has largely been eliminated. But Ethereum mining relies on the kind of graphics card found in a typical gaming computer, and many ordinary people can still do it.

Proof-of-work is just a competition to make a computer work hard, which means it uses a lot of energy. The environmental damage it causes is a major criticism of cryptocurrencies by environmentalists. Since the inception of Ethereum, its developers have been preparing to move to an alternative model known as proof-of-stake. Under this system, people would reserve or “stake” a certain amount of ether, the cryptocurrency of the ethereum blockchain, to win rewards for running software that correctly batches transactions into new blocks and checks The work of other validators. Proof of stake can reduce the power consumption of the Ethereum network by about 99%. It would also put miners out of work, which is a major blow given the capital investment to build the business. According to Bitpro Consulting, ethereum miners have already spent about $15 billion on graphics processing units (GPUs), not including ancillary costs such as wiring and transformers.

Prices of Selected Used Graphics Processing Units for Sale on eBay

Average for the previous week??

The ethereum merger is expected to take place in August, although no official date has been given. It has been pushed back many times, and many miners hope this will happen again. “I don’t think they’ll be able to get it done anytime soon,” said Aydin Kilic, chief operating officer of ethereum industrial miner Hive. But others associated with ethereum see a merger as inevitable. “The odds of not happening this year are very low (from 1% to 10%),” said Tim Becco, a computer scientist who coordinates ethereum developers. What I’d like to avoid is someone buys a GPU for mining today, but merges it in Happening this summer, it will make it almost worthless.”

Despite this, miners are actually expanding their operations. GPU prices have more than halved since the start of the year, leading to a surge in purchases. According to data from tracker Etherscan, Ethereum’s hashrate, a measure of the mining power that powers the network, has nearly doubled in the last year. Even with the current depressed cryptocurrency prices, mining Ethereum is more profitable than backing any other major coin, including Bitcoin. “I guess people are trying to get as much as possible before it’s over,” said Slava Karpenko, chief technology officer at 2Miners. The organization helps small miners pool their resources to support Ethereum. The group’s active user count has climbed 70 percent since November, to about 120,000, he said.

However, recovering costs has become more difficult due to the fall in the price of ether. Mike Lam, a 38-year-old engineer from Ontario who has been mining for a year, only made about $5,000 worth of cryptocurrency on his initial $30,000 investment in hardware; he also paid about $650 each. monthly electricity bill. Aaron Petzold, 24, a recent college student who mines ether at his parents’ house in Wisconsin, said he has four months to recoup his investment of more than $28,000. “I want to keep mining until it’s over,” he said. “It’s a big uncertainty. No one really knows what’s going to happen. There’s a lot of people who think I’m obsessed.”

The ethereum merger will likely settle after August.

Miners don’t get nothing. After the merger, their mining rigs will remain powerful computing devices that can be used elsewhere, and some are planning to mine other coins or find other uses for those rigs. After the merger, Petzold is considering using his device as a piece of hardware for digital video production, primarily responsible for rendering, which requires a lot of computing resources. “There are other uses for these cards,” he said. “You can turn it into a render farm, and you can do different machine learning options. They’re just not going to be as profitable as mining.”

Canadian mining pool operator Flexpool is looking to add more tokens for its members to mine and plans to deploy its developers to program other cryptocurrency projects, said a director who asked not to be named for fear of being robbed: “It’s like a company Typewriter companies. When nobody buys typewriters anymore, so you have to use the capital you make on typewriters to move to other businesses.”

Others, like Ivan Zhang, 35, and Karol Przybytkowski, 36, plan to sell their stable of graphics cards and use their facilities in upstate New York to host other miners’ gear for a fee. But GPU prices are expected to drop further as many ethereum miners are likely to rush to sell immediately after the merger. Bitpro plans to stop buying graphics cards within a few weeks, and its CEO Mark D’Aria said: “My view is that no matter how much we pay today, we’re going to make a lot less after this event. We’re just going to sit there and watch Let that happen and pick up the pieces.”

Some miners hope to do better by moving to mining other GPU-requiring coins like Ethereum Classic or Ravencoin. The more miners flocking to any coin, the harder it will be to make a profit. But cryptocurrency breeds optimists, and miners are building for what their business will be a reason to survive. Mikel-Angelo Chalfoun, 30, pays $9,000 a year for a warehouse in Dubai to house and power his 76 graphics cards. He said he would be able to compete with miners at a higher cost. “No matter how cheap crypto gets, no matter how harsh crypto winter gets, I’m fine, I’ll never mine at a loss,” he said.

Other miners just feel betrayed. Canadian engineer Lin said: “They need miners until they merge! It’s a little weird. Ethereum needs us miners until they deprecate us.” (He runs 50 graphics cards in his basement)

Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/bloomberg-businessweek-ethereum-mining-is-about-to-disappear-miners-are-not-happy/
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Killing convicts with nitrogen is even worse than the lethal injection

Nitrogen hypoxia is the gaseous canister version of a knee on the neck. US states that plan to use it must be stopped.

Joel Zivot
Physician in anesthesiology and intensive care medicine
Published On 22 Sep 2023

A fence stands at Elmore Correctional Facility in Elmore, Alabama, June 18, 2015. The state plans to start using nitrogen hypoxia for executions

 [File: Brynn Anderson/AP Photo]

Recently, the Department of Corrections of the state of Alabama announced it would try to execute death row prisoner Kenny Smith for a second time, this time with something they call nitrogen hypoxia.

On November 17, 2022, Alabama tried and failed to execute Smith with lethal injection owing to an inability to establish intravenous access.

My own research has shown that death by lethal injection involves choking on your own blood about 80 percent of the time. Yet, as bad as that sounds, execution by nitrogen gas will actually be worse.

Natural breathing is involuntary. It satisfies and fuels the body. Our brain knows when we breathe air but can be tricked briefly when breathing pure nitrogen. The chest rises and falls, the lungs inflate and deflate, but it’s like filling the gas tank with water. The engine seizes up and fails, as will the body. Inhalation of nitrogen gas rapidly empties the body of life, and a person would know they are dying – from the inside out.

Nitrogen is an asphyxiant. It will snuff out a burning candle and extinguish a life by displacing oxygen. Pure nitrogen, when inhaled, will not get you high. It is the gaseous canister version of a knee on the neck.

Two landmark Supreme Court judgments have laid down a requirement that if a prisoner claims a method of execution is unconstitutional because of cruelty, they must name another execution method that is readily available.

Oklahoma, Mississippi, and Alabama have all approved the use of nitrogen gas for execution as an alternative execution method, but no state has ever used it. Until now.

So, when Smith insisted that he didn’t want a second stab of lethal injection, he had to agree to death by nitrogen hypoxia. It’s the kind of morbid choice that only the US ‘justice’ system can conjure up.

Lethal injection can lead to a torturous death because of technical failures, botched and painful intravenous attempts, and the chemical burn to the lungs that happens to prisoners as a result of lethal injection.

And as a physician in the practice of anaesthesiology and intensive care medicine, I am opposed to lethal injection. It is designed to mimic a medical act. This is done to mollify public opinion by suggesting the safe oversight of medical practice.

The drugs used for killing through lethal injection have intoxicating properties. The practice can be compared with an overdose, like a death from fentanyl.

Before you die, you get high. I object to the use of medicine to punish and kill. My goal has always been to see the end of lethal injection. If a state wants to kill its citizens, it should use a method that does not masquerade as a medical act. It may as well use the firing squad.

Nitrogen gas, however, is a particularly sinister way of killing people.

To understand why, it’s important to dive into a little history. Before anaesthesiology, surgery was endured without pain control. In the early 19th century, surgeons were lauded for speed, not accuracy.

On occasion, surgery was performed as a public spectacle. To satisfy the taste for grizzly things, these events were well attended. On October 16, 1846, surgery changed forever with the first public display of a pain-free operation when a patient was administered ether gas during the procedure.

Dr William Morton gave ether to a patient being operated on by surgeon John Warren. The crowd, expecting the usual screams of agony, witnessed instead the stunning display of a patient at peace as he was cut upon. History records the account of John Warren exclaiming, “Gentlemen, this is no humbug!”

The gaseous forms of many chemicals are used currently in modern anaesthesiology. How they work is complex. The substances themselves can be single elements like xenon, or very large, fluorinated molecules like desflurane.

Gases used as anaesthetics have various potencies and generally, a little bit goes a long way. Anaesthetic gas must be mixed with air or oxygen because the body needs constant oxygen for fuel. The effects are sometimes described as sleep, but they are nothing of the sort.

Think instead of a spinning record: The needle is lifted from the record for a period of time and then replaced in the exact same spot. For the patient, no time has seemingly elapsed. When anaesthesia is administered expertly, the patient will be generally unharmed by the gas exposure.

In the period of breathing anaesthetic gases before reaching the needed state, some gases might produce a pleasant experience. Ether was known for this, and as a result, it was abused. We no longer use ether because it is also highly combustible.

This brings me back to nitrogen, a ubiquitous element that constitutes almost 80 percent of every breath we take, with oxygen making up the rest. We exhale all the nitrogen we breathe in. It has no value as fuel for the body.

Indeed, before it was named nitrogen following its discovery by Scottish physician Daniel Rutherford in 1772, chemist Antoine Lavoisier suggested that it be called azote, from the ancient Greek word meaning “no life”.

Like lethal injection, nitrogen hypoxia is all dressed up as a medically sound practice, when it is anything but. With lethal injection, one might have imagined some attempt at creating a state of anaesthetic stupor that would have some sort of small intoxicating benefit before dying.

With nitrogen gas, the gloves are off.

The state has abandoned the pretext of intoxication and replaced it with pure suffocation. What is so maddening about nitrogen hypoxia is, again, the propagation of the illusion of the safety of medicine and science.

Nitrogen is just a bullet in the barrel, but at least with execution by real bullets, all the fakery is gone.

The views expressed in this article are the author’s own and do not necessarily reflect Al Jazeera’s editorial stance

.
Joel Zivot
Physician in anesthesiology and intensive care medicine
Joel Zivot is a practicing physician in anesthesiology and intensive care medicine at Emory University in Atlanta, Georgia. Zivot is a recognized expert against the use of lethal injection and the tools of medicine for use in the death penalty.

The get-rich-quick days of crypto are over. Investors are losing their shirts, but industry players say this is healthy



Taylor Locke
Sat, June 18, 2022

It seemed like there was nowhere to hide in the crypto market this week.

Forced selling and liquidity troubles have “resulted in one of the worst quarterly price performances of the crypto space,” Lucas Outumuro, head of research at IntoTheBlock, wrote Friday in his newsletter.

“Overall, this week concludes a historic crash for crypto. We have witnessed record-level activity in multiple metrics as mayhem ensues throughout the market,” Outumuro wrote. “While it may still be too early to call the bottom, there are some evident similarities with previous bear markets.”

Bitcoin, the largest cryptocurrency by market value, fell below $20,000 on Saturday for the first time since December 2020. Ether, the second-largest cryptocurrency, dropped below $1,000, a level not seen since January 2021. The overall cryptocurrency market cap is below $1 trillion, from an all-time high north of $3 trillion.

As they anxiously watch on-chain movement, investors are wondering what’s ahead. Industry players are nearly certain that many projects will disappear, while adding that this reveals issues with centralization and leverage issues, but to some of them, there’s a silver lining.

“This is healthy,” Corey Miller, growth lead at cryptocurrency exchange dYdX, told Fortune.

Short-term adjustments

The domino effect within the cryptocurrency market will likely continue, at least in the short term, industry players predict. More pain is ahead for investors and projects exposed to excessive leverage or other operational issues. It seems to all trace back to Terra.

Though macroeconomic factors, including higher than expected inflation numbers in the U.S., set the stage for headwinds to come, the Terra ecosystem collapse—with failed algorithmic stablecoin TerraUSD (UST) and its original cryptocurrency Luna (LUNC) becoming nearly worthless—was an undeniable big bang in the space.

At its height, UST and LUNC were worth $60 billion, and after they collapsed to about zero in May, the impact on connected institutions became apparent this week. One of the cryptocurrency market’s biggest lending platforms, Celsius Network, paused its withdrawals on Sunday, sparking rumors of bankruptcy. Reports concerning the state of multibillion-dollar fund Three Arrows Capital followed soon after, fueling further fears of contagion and systemic risk. As days go on, more and more firms, companies, and platforms alike are coming forward with updates on their financial health or lack thereof.

From big players to everyday investors, the impact is being felt far and wide. Even major cryptocurrency-related companies, like Coinbase, Gemini, BlockFi and Crypto.com, recently announced layoffs and headcount reductions—several of them having just spent millions on Super Bowl ads as crypto’s market cap was near its peak.

“Things are really shaky right now and it’s going to take a while for things to stabilize. People are watching and waiting to see if something else will topple,” Michael Safai, managing partner at cryptocurrency trading firm Dexterity Capital, told Fortune. To be a “trusted ecosystem, investors have to feel confident that when they put money in, they’re able to get it out. This is definitely setting back a lot of that trust.”

Currently, we’re in a bit of a “hangover,” Jason Urban, co-head of Galaxy Digital Trading, told Fortune. In the near term, continued volatility is expected.

“I think for the next three to six weeks, people are going to be figuring out what exactly has happened, and who is well healed and who is not. That’s the first step,” Urban said. Subsequently, “there are going to be projects that don't make it, and there are going to be projects that become wildly successful,” he added.

What we are seeing now is “excessive risk being wiped out from the ecosystem,” Miller, growth lead at cryptocurrency exchange dYdX, told Fortune, which he says is a healthy development. “While it does reveal many interconnected links within crypto, these wipeouts support the idea that crypto as a whole remains resilient to existential risks.”

Looking ahead

Coming out of this crash, major players in crypto say changes are all but certain in the space. There might be a hesitancy towards certain projects, depending on their code and pitch, or with platforms offering extremely high yield by over-leveraging. Regulation may also soon follow, but many in the space remain bullish on future innovation.

Urban compared the current state of the crypto market to the bursting of the internet bubble in 2000. Looking ahead, he predicts that alongside the distress, innovation will come out of this time period. Many others echoed his remarks.

“In stocks and crypto, you will see companies that were sustained by cheap, easy money—but didn’t have valid business prospects—will disappear,” Mark Cuban, avid cryptocurrency investor, told Fortune. “Like [Warren] Buffett says, When the tide goes out, you get to see who is swimming naked.”

While this will be a “very bad” period for “poorly built or not very useful projects,” things will be “much less bad for valuable ones,” Sam Bankman-Fried, chief executive officer of cryptocurrency exchange FTX, also told Fortune. “I don't think we'll see sectors die out but we might see some rotate to more sophisticated versions.”

In the long term, Safai sees less excessive yield and leverage.

“There’s going to be a lot of shaking up to be done,” Safai said. “[T]his era of being able to get exceptional yield for nothing is over. This is when a lot of leverage is going to get pulled out of the system, and this will ultimately make the crypto ecosystem safer.”

This downturn has revealed the crypto-related projects and funds that were “utilizing more risk than what was prudent,” Miller said. “Similar to other downturns, many players become forced sellers and are subsequently washed out.”

In response to the carnage this time around, government regulators have already signaled interest in furthering the development of a regulatory framework for the cryptocurrency market. Those within the space have mixed feelings about government intervention, but it might be happening whether they like it or not.

“We believe that regulation is a positive development in our industry as it will force players to disclose more details on their activities so that clients can better assess the potential risks associated and how they vary across different companies,” Adam Reeds, co-founder and chief executive officer at cryptocurrency lending platform Ledn, told Fortune.

While recent events, like the collapse of UST and LUNC, has “posed a threat to crypto market sentiment and is a catalyst for regulation, it will ultimately not stop the growth of innovation in Web3,” Isla Perfito, chief executive officer of Sator, a blockchain-based entertainment platform, told Fortune.

Lessons learned

Though some industry veterans see similarities between this downturn and previous “crypto winters,” some lessons specific to this crash will carry extra weight going forward.

The “biggest thing” to come out of this downturn will be a “focus on fundamentals,” says Tom Dunleavy, Messari senior research analyst.

“In the past, … [t]he new and most interesting projects got the capital, and grew to unbelievably large sizes for what they were actually accomplishing (or could really accomplish),” Dunleavy told Fortune. “The focus going forward will be on strong protocols, strong teams, and strong use cases.”

He also predicts that this downturn will “essentially end” the “wars” between Ethereum (ETH) competitors. “There is going to be BTC [or Bitcoin] and ETH, and then a long tail of projects fighting for the remaining 20% to 30% of crypto market cap."

Major takeaways from this crash will also shape the future of the space, industry players say.

“Everyone is having to take a good hard look at their risk management right now, but exchanges seem to be pretty inoculated from this madness. With less capital at everyone’s fingertips, the question for traders will be how to more intelligently deploy capital and optimize activity in a world where leverage is limited,” Safai said.

This will be important because “a handful of trading firms make up a significant amount of market activity, and the market doesn’t want to be without them,” he said. “Shops that navigated other lengthy crypto downturns will lean on that experience and probably come out far stronger, to the benefit of the industry.”

This story was originally featured on Fortune.com

Crypto’s Excruciating Week Has Traders

Bracing for Next Crisis

Michael P. Regan

Sat, June 18, 2022

Crypto’s Excruciating Week Has Traders Bracing for Next Crisis

(Bloomberg) -- It was one of the most dramatic weeks in the short history of the cryptocurrency market, bookended by the type of announcements investors fear the most from a counterparty: We’re sorry, but we just can’t return your money right now.

In between, a nascent technocratic industry with grand ambitions to reinvent the financial system was rocked repeatedly by echoes of past crises in the old system. It was a week of margin calls, forced selling and important collateral being exposed as way too illiquid in a time of crisis. There were rumblings of hedge-fund blowups, tales of opportunistic predatory trading, job cuts and loud denials of problems from key players proven wrong almost immediately.

Amid it all, the myth was shattered once and for all that this new crypto financial system was somehow immune to -- or even able to benefit from -- the economic fundamentals currently punishing the old system.

It all started late Sunday, when a sort of crypto shadow bank called Celsius Network suspended withdrawals from depositors who had been enticed by sky-high interest rates that, in retrospect, were likely too good to be true. By the end of the week, on the other side of the world in Hong Kong, the digital-asset lender Babel Finance also froze withdrawals.

We’re working on it, both firms told customers, and no doubt they are. Yet speculation is growing that Celsius Network, at least, is drowning in what research firm Kaiko called a “Lehman-esque” position.

Like Lehman Brothers did almost 14 years ago, Celsius’s woes showed how interconnected big players in this financial system are and how fast contagion can spread, making this week’s drama the sequel to last week’s and the prequel to next week’s.

Many analysts have pointed to problems that Celsius is having with an Ethereum-linked token called staked ETH, or stETH -- a coin designed to be a tradable proxy for Ether that’s widely used in decentralized finance. While every stETH is meant to be redeemable for one Ether after long-awaited upgrades of the Ethereum blockchain take effect, recent market turmoil has caused its market value to fall below that level.

Terra Connection

Research firm Nansen has also identified Celsius as one of the parties involved when the UST stablecoin lost its peg to the dollar in May. The episode with that token, which was driven largely by algorithms, crypto animal spirits and untenable yields of 19.5% for depositors in the Anchor Protocol, triggered the loss of tens of billions dollars in the spectacular implosion of the Terra blockchain.

Nansen’s analysis confirmed that Terra’s Anchor program had been an important source of yield for Celsius, according to commentary from crypto exchange Coinbase. “In our view, this likely begged the question of how Celsius could fulfill its obligations without that 19.5% yield,” wrote the institutional team at Coinbase. That firm, by the way, said this week it will lay off 18% of its previously fast-growing workforce, joining other pink-slip-issuing crypto startups such as Gemini and BlockFi that are struggling amid a relentless plunge in asset prices that’s been dubbed “crypto winter.”

The drama ramped up on Wednesday with an alarming tweet that seemed to confirm speculation that had been swirling around one of the most influential hedge funds in crypto, Three Arrows Capital. “We are in the process of communicating with relevant parties and fully committed to working this out,” one of the firm’s co-founders wrote, without revealing any details about what exactly the “this” was that it was working out.

By the end of the week, the multi-billion-dollar fund’s founders had explained to the Wall Street Journal that they were exploring options that include a rescue by another firm and an agreement with creditors that would buy them time to work out a plan. Three Arrows, too, was a casualty of both the stETH woes and Terra’s collapse. The fund had bought about $200 million in the Luna currency used to back up the value of Terra’s UST stablecoin, according to the Journal. Luna, which sold for more than $119 in April, is now worth about $0.000059.

Just as Bear Stearns’s hedge funds were among the first to reveal problems from the subprime mortgage crisis, Three Arrows is likely not alone. The “cockroach theory” springs to mind: If you see one of those nasty bugs scurrying across the floor, chances are there are plenty more hiding behind the fridge or under the sink.

Crypto Shark Tank

In fact, the hot trade in crypto now is no longer pumping coins “to the moon” with tweets full of rocket-ship emojis, but rather trying to find where those roaches are hiding and make a meal out of them. Some crafty traders have dispatched bots to prowl blockchains in search of highly leveraged positions in danger of forced liquidation because the value of their collateral is no longer enough to back up their loans. If successful, they get a 10% to 15% cut of the collateral sale -- incentives paid out by automated protocols that are meant to protect them from insolvency.

As the dust settled at the end of the week, the damage was startling. Bitcoin has notched 12 straight days of losses, its longest sustained slump, and it breached $20,000 early Saturday for the first time since 2020. Flailing against a backdrop of monetary tightening, the world’s largest cryptocurrency is now down more than 70% from its highs in November when it was approaching $70,000. Ether dipped below $1,000, having sold for as much as $4,866 seven months ago. What was once a more than $3 trillion industry is now valued at less than $1 trillion.

And despite the similarity of past crises in traditional finance, there is one big difference as the weekend approaches: Players in the old-fashioned markets at least get to turn their machines off on Saturday and Sunday to get some sleep and lick their wounds. As a three-day holiday weekend approaches in the US, with forecasts for sunny skies in New York, those with heavy exposure to digital assets will remain glued to their screens, where crypto winter’s deadly blizzard shows little sign of letting up.

Bitcoin Plunges Below $20K for First Time Since December 2020; Ether Drops Below $1K


OGNYAN CHOBANOV

Greg Ahlstrand, James Rubin
Sat, June 18, 2022

Bitcoin (BTC) sank below $20,000 for the first time since December 2020, losing 9.5% in the past 24 hours. At time of publication, the largest cryptocurrency by market cap was changing hands around $18,984.1 after trading at a low of $18,739.50.

Ether (ETH), the second largest crypto, also continued its decline, falling 9.78% to about $992 at time of publication.

The crypto panic – which began a few weeks ago with the Terra ecosystem collapse and then spread to the Celsius platform – has moved on to hedge fund Three Arrow Capital, which reportedly had its collateral liquidated by crypto lender BlockFi.

Checking traditional markets, U.S. stocks saw more massive selling on Thursday, with the Nasdaq tumbling 4.1% and the S&P 500 3.25% before a slight recovery on Friday. For the week, the Nasdaq and S&P are each lower by about 6%.

Amitoj Singh contributed to this report.

Crypto Traders Turn Against Each Other in a Collapsing Market




Olga Kharif
Fri, June 17, 2022, 5:

With crypto prices tumbling precipitously, traders have begun increasingly turning against one another to eke out ever-elusive profits.

Many shark traders scour blockchains -- digital ledgers for recording transactions -- seeking information on other traders, particularly those with highly leveraged positions, an anonymous user known as Omakase, a contributor to the Sushi decentralized exchange, said in an interview.

The sharks then attack the positions by trying to push them into liquidation, and earning liquidation bonuses that are common in decentralized finance (DeFi), where people trade, lend and borrow from each other without intermediaries like banks.

Related strategies may have contributed to the collapse of the TerraUSD stablecoin, with shark traders making money off price arbitrage between the Curve decentralized exchange and centralized exchanges, according to Nansen, a blockchain analytics firm.

Recent troubles at crypto lender Celsius Network were exacerbated by arbitragers as well. The price of stETh token that Celsius has a large position in started trading at a large discount from Ether, to which it’s tied.

“As stETH goes down, arbitragers buy stETH and short ETH against it, sending ETH lower, which again lowers collateral values across DeFi,” effectively worsening Celsius’s position, according to a recent Arca note.

As Omakase put it, “In a downtrend environment, where yields are harder to access, what we are going to see is some actors utilize some more aggressive strategies, and that may not be necessarily good for the community.”

“The environment has become more player vs player,” Omakase added.

With crypto prices under pressure, taking on leverage has presented an even greater peril. Last year, Sushi launched a margin-trading and lending platform. Most crypto exchanges offer margin trading, and in the past it has been as high as 100X, meaning that people were able to borrow 100 times what they put down as collateral.

Most DeFi apps require traders to overcollateralize, however -- effectively taking out less in loans than they put in.

Driving Down the Price

A trader may find out that others could get liquidated when a coin’s price drops to, say, $100. The trader could then build up a sufficient position in the coin, then sell in order to pull the price below $100, while also collecting the reward for liquidating the trader that most DeFi apps offer.

“Most protocols offer a 10-15% liquidation fee,” Omakase said. “Triggering enough liquidations would cause a liquidation cascade where a motivated actor could simply hold a short position in order to profit for the subsequent secondary decrease.”

Other traders are simply profiting off liquidations they don’t trigger. Nathan Worsley runs a slew of bots -- software programs -- that search for traders who are about to get liquidated and gets paid a commission for liquidating them.

“Recently the amount of liquidations has been huge,” Worsley said in emails. “However, liquidations is not a continuous strategy, you sometimes go for a week or more without any significant liquidations. However, when liquidations happen there are usually a lot at once. You basically have to work a long time while making $0 profit, in order to be ready for the big day or two when you might be able to make a million dollars at once.”

His bots continuously scour blockchains, keeping a list of all the borrowers using a particular app and scrutinizing the health of their accounts. Once positions are ready for liquidation, “it’s usually a battle to be the quickest and perform the liquidation,” Worsley explained.

“I would push back on classifying this as an ‘attack,’” he added. “The reason is because without liquidations, you can’t have a lending market. So even though no one enjoys being liquidated, it’s essential that people do get liquidated in order to make the market and protect the protocol from insolvency.”

Liquidations can be triggered after traders borrow from apps like Aave or Compound, and put up collateral -- say, in Ether -- that’s typically greater than what they borrow, perhaps 120% of the borrowed funds. If Ether’s price drops, that collateral may now be worth only 110% of what the trader borrowed.

‘Protect the Protocol’

“My job as the liquidator is to protect the protocol by closing your position,” Worsley said. “The protocol gives me a reward for being a liquidator to encourage this activity, because blockchains cannot move by themselves. You have borrowed $1,000 of Bitcoin, so I repay the $1,000 of Bitcoin you owe the protocol. In return, the protocol gives me $1000 of your Ethereum collateral, plus a $100 ‘liquidation bonus’ from your excess collateral. I have made a profit, you have been liquidated and your position is closed, and the protocol itself has been protected from bad debt.”

With liquidation targets becoming more and more tempting in a tumultuous market, Omakase offers this advice: “Generally everyone should stay safe, everyone should avoid the use of leverage.”

Three Arrows Capital Confirms Heavy Losses From LUNA's Collapse, Exploring Potential Options: Report

Shaurya Malwa 

Fri, June 17, 2022

Beleaguered cryptocurrency fund Three Arrows Capital (3AC) confirmed Friday it had suffered heavy losses in the recent market downturn and said it had hired legal and financial advisors to figure a way out, according to a WSJ report.

• “We are committed to working things out and finding an equitable solution for all our constituents,” 3AC co-founder Kyle Davies told the WSJ. The fund had over $3 billion worth of cryptocurrencies under management as of April.

• 3AC is exploring options including asset sales and a rescue by another firm and hopes to reach a settlement with creditors, Davies said. 3AC owes at least $6 million to crypto exchange BitMEX, as per a separate report by The Block today.

• Davies said 3AC invested over $200 million in LUNA tokens as part of a $1 billion raise by the Luna Foundation Guard in February, an amount that is now essentially worthless since the Terra ecosystem imploded in mid-May. “The Terra-Luna situation caught us very much off guard,” Davies told the WSJ.

• LUNA lost nearly all of its value over the course of a week, while ecosystem algorithmic stablecoin terraUSD (UST) fell to a few pennies after losing its intended peg with the U.S. dollar.

• 3AC was additionally known as one of the largest holders of Grayscale Bitcoin Trust (GBTC), an institutional bitcoin product, as well as staked ether (stETH) tokens, both of which have seen steep declines recently (Grayscale and CoinDesk are independent subsidiaries of the Digital Currency Group).

• Davies added that 3AC was working on quantifying its losses and valuing its illiquid assets, which include many venture-capital investments in crypto startups.

• Meanwhile, Nichol Yeo, a partner of law firm Solitaire LLP, which is advising 3AC, told the WSJ that it was keeping Singapore’s financial regulator, the Monetary Authority of Singapore, apprised of 3AC's recent developments.

Babel Finance suspends withdrawals as crypto markets slump


Fri, June 17, 2022

FILE PHOTO: Illustration shows representation of cryptocurrency bitcoin

(Reuters) - Hong Kong-based Babel Finance temporarily suspended the withdrawals and redemption of crypto assets on Friday, as the crypto lender scrambles to pay its clients after the recent slump in the digital currency market.

Cryptocurrency valuations have plunged in recent weeks as investors dump risky assets in a rising rate environment, with bitcoin, which reached a record high of $69,000 in November, having lost more than half its value this year.

"Recently, the crypto market has seen major fluctuations, and some institutions in the industry have experienced conductive risk events. Due to the current situation, Babel Finance is facing unusual liquidity pressures," the company said.

Crypto lenders gather crypto deposits from retail customers and re-invest them, proclaiming double-digit returns and attracting tens of billions of dollars in assets. However, the recent meltdown has lenders unable to redeem their clients' assets.


Babel, which has 500 clients and limits itself to bitcoin, ethereum and stablecoins, raised $80 million in a funding round last month, valuing it at $2 billion. It had ended last year with $3 billion of loan balances on its balance sheet.

Earlier this week, U.S.-based retail crypto lending platform Celsius Network froze withdrawals and transfers between accounts "to stabilize liquidity" as the collapse of cryptocurrency TerraUSD in May triggered a rise in redemptions.

(Reporting by Sameer Manekar in Bengaluru; Editing by Amy Caren Daniel)

Bitcoin’s nosedive through the $20,000 mark is a Minsky Moment for crypto: ‘Psychologically for a lot of people, this is galling’

Mark DeCambre - 
Fri, June 17, 2022


Is bitcoin facing a breaking point? That’s what some investors, acolytes and otherwise, might be contemplating, as the cryptocurrency’s descent accelerates over the weekend. The world’s No. 1 digital asset was last trading at $18,654, down more than 70% from its peak of around $65,000, with the broader crypto market feeling to some as if it were in free fall.

“Psychologically for a lot of people this is galling,” said Charles Hayter, chief executive officer of CryptoCompare, a company that provides data and analytics about the crypto market.

Hayter, speaking to MarketWatch in a weekend interview, allowed that the risks inherent in bitcoin are part of its appeal.

Yves Lamoureux, the bitcoin-bullish president of Montreal-based macroeconomic research firm Lamoureux & Co., said that debt swirling around in the crypto market has amplified recent swings lower, with a number of highly indebted companies facing margin calls and this arcane business’s version of Wall Street bank runs. “If my read is correct, this is massive liquidation of huge leverage in the system,” said Lamoureux.

“It’s too easy as usual because bitcoin has this way of over [extending],” he said.

Indeed, 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 among accounts, “due to extreme market conditions.”

Don’t miss: Celsius abruptly cancels AMA session as company navigates ‘very difficult challenges’

Also see: Crypto suffering a ‘Long Term Capital Management moment’: Michael Novogratz

On top of that, a major player in decentralized finance markets, or DeFi, a corner of the crypto world where traders often seek to earn money on leveraged crypto, has reportedly faced its own challenges.

“We are seeing rapid Minsky cycles in this space,” Hayter said.

Economist Hyman Minsky, who died in 1996, espoused a view that a period of distortions in the financial system eventually ends very badly.

Signs of trouble in crypto markets emerged in May with the collapse of the Terra, an algorithmic stablecoin blockchain pegged to fiat currencies like the dollar, which are intended not to hold their value against the peg.

See: This 24-year-old quit his job at hedge-fund powerhouse Citadel to build anew on the Terra blockchain — which collapsed two months later

“Bitcoin has already broken down [and is] now seeing significant downside follow-through,” Katie Stockton, a market analyst at Fairlead Strategies, told MarketWatch ahead of the release of a Saturday report to clients on bitcoin’s technical levels.

She said bitcoin’s collapse isn’t 100% confirmed but called sentiment badly deteriorated. If negative momentum continues, she said, she sees the next support at $13,900, based on her analysis.

Hayter said the current situation should be seen as par for the course for bitcoin and its ilk, “with perhaps,” he speculated, “the next iteration allowing regulation to strengthen the natural weak points.”

As is typical of crypto diehards, optimism reigns supreme: “I think bitcoin is fine,” said Lamoureux. “It’s moving from weak hands to strong hands.”

While bitcoin is down 59% in 2022, the equity benchmark S&P 500 is off almost 23%. The blue-chip Dow is down 17.8%. Gold has edged upward by 0.61% and the U.S. dollar index by more than 9%.

Bitcoin Tumbles Below $19,000 

for the First Time Since 2020

The most popular cryptocurrency has been in free fall

for several weeks now.

• LUC OLINGA 
Fri, June 18, 2022

It's a real debacle. 

Bitcoin fell below $20,000 and $19,000 for the first time since 2020, marking a week in which panic seems to be dominating the cryptocurrency market. 

The price of Bitcoin was at $18,766.13 at last check, according to data firm CoinGecko. The most popular digital currency was down more than 9% in the last 24 hours and 35.7% in the last seven days.

The price of Bitcoin was last seen at these levels around December 12, 2020. But since then it had been a meteoric rise until a crash began starting this year.

Ether, the second cryptocurrency by market value, also fell below the symbolic threshold of $1,000. The native token of the Ethereum platform was worth $970.50, down 10.1% in the past 24 hours and down 41.6% in the past seven days.

Bitcoin has lost 72.7% of its value since hitting an all-time high of $69,044.77 on Nov. 10. Ether for its part lost almost 80% of its value compared to its record of $4,878.26 crossed the same day.

So it's no surprise that the crypto market's valuation has lost nearly $2.3 trillion to $866 billion since hitting a high of $3 trillion in November.

The reasons for the crash are the same: fears of recession are pushing investors to liquidate risky assets. Cryptocurrencies and tech groups are considered as such. 

'Terrible' News Cycle for Crypto

The crypto market is also shaken by various scandals.

The first is the sudden collapse of sister tokens UST and Luna, despite their founders promising that their technology was solid and viable. 

The second scandal is the decision, on June 12, by crypto lender Celsius Network to freeze withdrawals and other transactions from its platform. Rumors have since been circulating about a potential insolvency from Celsius, which has still not dispelled them.

Then, on June 17, crypto financial services company Babel Finance said it was temporarily suspending withdrawals and redemptions in the latest blow to the cryptocurrency sector.

"Due to the current situation, Babel Finance is facing unusual liquidity pressures," the firm said in a statement. "We are in close communication with all related parties on the actions we are taking in order to best protect our customers."

During this period, the statement continued, "redemptions and withdrawals from Babel Finance products will be temporarily suspended, and resumption of normal service be notified separately."

Babel Finance describes itself as "one of the largest service providers to institutions in the crypto financial markets."

"The news flow has been terrible for crypto," said Edward Moya, senior market analyst for the Americas with Oanda."The Texas Securities Board is investigating the Celsius network‘s decision to suspend withdrawals and everyone is expecting restrictive guidelines to quickly make life difficult for crypto-lending firms."

Moya said that Bitcoin declined "as risk appetite left Wall Street as investors became worried of a much quicker deterioration for the US economy."

"Surging recession fears are crippling appetite for risky assets and that has crypto traders remaining cautious about buying bitcoin at these lows," he said.

Crypto Suffers Another Blow: Babel Finance Freezes Withdrawals

The crypto firm suspends withdrawals and redemptions in latest shock to the crypto sector, leaving investors to ask 'who's next?'

ROB LENIHAN
JUN 17, 2022 

Crypto financial services company Babel Finance said it was temporarily suspending withdrawals and redemptions in the latest blow to the cryptocurrency sector.

The Hong Kong-based company said in a June 17 statement posted on its website that "recently, the crypto market has seen major fluctuations, and some institutions in the industry have experienced conductive risk events."

"Due to the current situation, Babel Finance is facing unusual liquidity pressures," the statement read. "We are in close communication with all related parties on the actions we are taking in order to best protect our customers."

During this period, the statement continued, "redemptions and withdrawals from Babel Finance products will be temporarily suspended, and resumption of normal service be notified separately."

The company's website describes its vision as "building open financial infrastructure for the future."

On May 25, Babel Finance closed an $80 million Series B fundraising round at $2 billion valuation.

Babel Finance describes itself as "one of the largest service providers to institutions in the crypto financial markets."

The company said it limits its business to Bitcoin, Ether -- the two largest cryptocurrencies by market value -- and stablecoins, and serves a select clientele of about 500 customers.

The news follows Monday's announcement from Binance, the world's largest cryptocurrency exchange by volume, that it was temporarily pausing Bitcoin withdrawals

Meanwhile, crypto lender Celsius Network announced that it would suspend indefinitely various transactions, including withdrawals of funds

Another Crypto Winter?

And Coinbase Global (COIN) - Get Coinbase Global Inc Report shares have been sliding after analysts at JPMorgan slashed their price target on the digital currency trading platform amid the trillion meltdown in global cryptocurrency markets.

The platform will cut around 18% of its workforce, a level that would eliminate around 1,100 jobs and generate '"substantial" reorganization charges.

"We appear to be entering a recession," which "could lead to another +crypto winter+, and could last for an extended period," Coinbase said in a blog post. "While we tried our best to get this just right, in this case it is now clear to me that we over-hired."

JPMorgan analyst Kenneth Worthington lowered his rating on Coinbase to neutral from overweight, while cutting his price target by more than $100 to $68 per share.

And last month, the crypto market was rocked by the collapse of the stablecoin UST or TerraUSD, and the Luna token.

Bitcoin has lost 30.4% of its value in the last week alone, according to CoinGecko, and was recently $20,960.76.

"The news flow has been terrible for crypto," said Edward Moya, senior market analyst for the Americas with Oanda."The Texas Securities Board is investigating the Celsius network‘s decision to suspend withdrawals and everyone is expecting restrictive guidelines to quickly make life difficult for crypto-lending firms."

Moya said that Bitcoin declined "as risk appetite left Wall Street as investors became worried of a much quicker deterioration for the US economy."

"Surging recession fears are crippling appetite for risky assets and that has crypto traders remaining cautious about buying bitcoin at these lows," he said

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