Crypto Faces Growing Threat From Financial Sharks
Crypto markets are facing intense pressure as the asset class enters a downturn that has attracted opportunistic investors and regulatory scrutiny. Once a scrappy fringe asset class, digital currencies have recently fallen harder than the broader stock market, creating a volatile environment that draws “sharks” to vulnerable targets. As the downward trend continues, specific sectors within the crypto ecosystem are revealing cracks in their foundation.
Lending Firms and Liquidity Crises
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Crypto lending was a popular strategy during the previous bull run, promising capital for businesses and returns for investors. However, the decline in major assets like Bitcoin and Ether has threatened the viability of these business models. Florida-based Celsius Network, which claimed to service 1.7 million customers, was among the first to halt operations. The company announced it was pausing all withdrawals, swaps, and transfers to position itself to honor its obligations over time.
The distress is spreading across the sector. Hong Kong-based Babel Finance and Singapore’s Vauld have also faced liquidity crunches, with Vauld freezing withdrawals on Monday. Singaporean crypto hedge fund Three Arrows Capital filed for bankruptcy last week and is currently in liquidation. Sam Bankman-Fried, the crypto billionaire known as SBF, has offered to rescue some faltering lenders like BlockFi and Voyager Digital, drawing comparisons to J.P. Morgan’s historic intervention. It remains uncertain if the rescue efforts will succeed or if many of these stories will have happy endings.
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Amid this chaos, stablecoins—assets designed to maintain a value of $1—have struggled to maintain their peg. Neutrino USD (USDN) dropped 20% in April after allegations of price manipulation on the Waves blockchain. TerraUSD also depegged, causing significant ripples across the market. Now, the world’s largest stablecoin, Tether, has slipped below its $1 peg. With a market cap of $84.2 billion, a failure at Tether could be catastrophic, though the company claims it has ample reserves to back its currency.
The non-fungible token (NFT) market has also shown signs of cooling. While these crypto-cousins were billed as a means for artists to obtain new revenue streams for their work (Beeple, for instance, sold an NFT for $69 million in March 2021), it became apparent that not all artists were benefiting from the hype.
