As crypto winter continues to dash hopes of easy money, Genesis Trading CEO Michael Moro tweeted on June 17 that his digital asset prime brokerage had mitigated losses with “a large counterparty” that failed to meet a margin call last week.
Moro said the New York-based Genesis sold and hedged all of the liquid collateral from the counterparty which did not meet the margin call to minimize any downside, and that no client funds were affected.
“We will actively pursue recovery on any potential residual loss through all means available, however our potential loss is finite and can be netted against our own balance sheet as an organization,” Moro tweeted.
Cryptocurrency hedge fund Three Arrows Capital Ltd. failed to meet margin calls earlier this month. 3AC is exploring options, including selling assets and a bailout by another company, the Wall Street Journal reported on Friday.
The company’s founders said Friday that 3AC suffered heavy losses from a broad market selloff in digital assets.
“We have always been believers in crypto and we still are,” said 3AC co-founder Kyle Davies. “We are committed to working things out and finding an equitable solution for all our constituents.”
Here are seven things to know about crypto firms going bust, freezing funds, getting margin called and laying off.
Crypto has collectively lost $1.5T and investors want to sue someone
The crypto market hit its lowest point since December 2020, with investors worldwide looking at a collective $1.5 trillion in recent losses. “A blizzard of class-action lawsuits are being prepared,” Guardian reported.
The price of a Bitcoin (BTC) dipped briefly below $20,000 to around $17,600 on June 18. It is trading at $20,083.28 as of this writing. The Ether (ETH) price dipped to around $900 on June 18 and is now trading at $1,101.86.
Even long-term Bitcoin holders who had “hodl’d” until now are coming under extreme pressure.
Strategists at Glassnode track an indicator known as realized price — the average purchase price of all Bitcoins in circulation. Bitcoin was trading below its realized price of $23,430, Bloomberg reported on June 14.
“The bloodbath that brought BTC down from $21,000 to below $18,000 during the weekend has resulted in the largest USD-denominated realized loss for Bitcoin investors,” Cryptopotato reported. “Interestingly, long-term holders were among the most active sellers, some of which realized losses in excess of 70 percent.”
Kim Kardashian and the boxer Floyd “Money” Mayweather Jr. are being sued for alleged false statements promoting the cryptocurrency EthereumMax. Prosecuting fraud in the crypto arena is notoriously difficult, Guardian reported.
Mike Novogratz, CEO of Galaxy Digital, predicted that two-thirds of crypto hedge funds will go out of business, but said he remains optimistic that crypto will be adopted “in real life” and in real applications.
Three Arrows Capital confirmed $200M loss
3AC invested more than $200 million in LUNA tokens as part of a $1 billion raise by the Luna Foundation Guard in February, an amount that is now almost worthless after the Terra ecosystem collapsed in mid-May. “The Terra-Luna situation caught us very much off guard,” Davies told the Wall Street Journal.
The LUNA price fell 96 percent in a day on May 12, pushing it to less than 10 cents, while its sister soin, the algorithmic stablecoin terraUSD (UST) lost its peg to the U.S. dollar and decreased in value to pennies.
3AC was also one of the largest holders of Grayscale Bitcoin Trust (GBTC), an institutional Bitcoin product, as well as staked ether (stETH) tokens, which have both seen steep declines.
Citing extreme market conditions, one of the largest crypto lenders, Celsius Network, told users it was pausing all withdrawals, swaps and transfers between accounts — a move that helped send its price down almost 70 percent and triggered a slide among other crypto coins.
Celsius is looking for possible financing options from investors but is also exploring a financial restructuring, a person familiar with the matter told Wall Street Journal. The company has hired restructuring attorneys from the law firm Akin Gump Strauss Hauer & Feld LLP.
Babel Finance freezes withdrawals
Hong Kong-based crypto lender Babel Finance said it was suspending withdrawals and redemptions in a June 17 announcement on the company’s website, citing “unusual liquidity pressures” and alluding to major market fluctuations and “conductive risk events” among institutional market participants.
Babel was valued at $2 billion in May 2022 Series-B funding round which raised $80 million.
BlockFi struggles to raise cash despite discount
Crypto lender BlockFi is struggling to raise cash despite offering to take a steep discount on its valuation, raising the risk that it could be forced into a financial restructuring.
The New Jersey-based startup raised $400 million in a 2021 funding round that valued it at $5 billion. It has been trying to raise $100 million for a month at a valuation of $1 billion.
Investors are increasingly concerned BlockFi could soon end up like crypto lender Celsius Network, which hired restructuring attorneys after freezing all withdrawals, swaps and transfers citing of market volatility, a source close to the situation said.
“This could be the next one,” the source told New York Post.
The Silicon Valley-based crypto exchange Coinbase announced on June 14 that it would lay off about a fifth of its staff — 1,100 employees — citing too-rapid growth. Coinbase went on a massive hiring spree earlier this year and ran “a titanic Super Bowl ad, SFGate reported. The company said it would rescind job offers.
Almost three months before the announcement that Coinbase was laying off 18 percent of its full-time workforce, legendary shortseller James Chanos bet that the stock price of the No. 3-ranked crypto exchange would fall. Chanos is the hedge fund manager who famously unloaded shares of corporate fraud Enron months before the energy company collapsed.
Chanos told CNBC in March that he was shorting Coinbase, calling it a “bubble stock.” He said he expected fee compression as competition increased among crypto exchanges, and he doubted Coinbase could be profitable in 2022. Chanos said Coinbase is “tremendously overvalued.”
The price of Coinbase tokenized stock FTX has decreased from a high of around $610 on April 12, 2021, to trade at $51.13 as of this writing, with a Coinmarketcap ranking at No. 3,540.
Don’t expect crypto to replace government-backed currencies: Ethereum co-founder
Inflation has eroded the purchasing power of many people’s savings denominated in dollars, euros, or sterling, said Vitalik Buterin, the Canadian co-founder of Ethereum, speaking at the VivaTech conference in Paris. The growing use of Bitcoin and other cryptocurrencies have caused speculation over the extent to which crypto could become a normal part of life, Buterin said.
“I do not expect cryptocurrencies to take over the world,” Buterin said, adding, “It’s about cryptos and digital and government.
Image by Marco Verch Professional Photographer, https://www.flickr.com/photos/30478819@N08/