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The Ripple Effect - Chung's Weekly Digest  (6/20)

Three Arrows Capital and Celsius are now battling with solvency in the immediate aftermath of Terra’s collapse, and this is very disconcerting.

The Domino Effect

Bitcoin ($BTC) fell below $18k, and Ethereum ($ETH) dipped below $900 during the weekends as selling pressure intensified. The crypto market is facing extreme uncertainties after the recent $LUNA fiasco took its toll on some of the biggest players in the industry. 

Source: Bitcoin dipped below its previous market cycle high amidst speculation of impending liquidation. 

Celsius, a major crypto lending platform, has caused further panic after it paused all withdrawals, swaps, and transfers between accounts. This gave rise to concerns about the platform’s solvency. 

The negative news did not stop at Celsius alone. Three Arrows Capital (3AC), one of the most bullish hedge funds in the crypto ecosystem, is faced with massive losses after failing to meet its obligations on an overcollateralized margin loan. 

The market does not react well to such news. There are hints of further liquidation that might take place if the liquidity crunch is unresolved. If that happens, there will be further market sell-off that might tank the crypto market to dangerous levels. 

A few cautions that are worth noting. First, the extent of losses by 3AC has yet to be determined. 3AC holds interests in many crypto projects as early-stage investors. These interests are locked as vested tokens subject to a vesting schedule. Creditors may take control of these assets and may sell them to set off existing debts. 

Miles Deutscher, an independent crypto analyst, lists the projects that 3AC holds as their primary investment. 

Secondly, Celsius must address the public and its community on its current status truthfully and frankly. Million in assets are locked, and there are hints that Celsius might not be able to repay its depositors as its solvency now hangs by a thread. 

Thirdly, the market will not be making an immediate recovery and hit another all-time high unless the fundamentals in the market are positive. Finally, there is no liquidity to push the price of crypto assets if interest rate hikes continue. Technically, market participants are cautious for as long as Bitcoin’s price is below the 200-day Exponential Moving Average (EMA).  

Weekly Recap

Market Sentiment

Source

Market recovery is not in plain sight. The crypto winter is likely to turn into a bear market cycle. However, this bear market might not last as long as the previous one for a few reasons: 

  • There are far more adoption and utility for cryptos in the real world
  • Institutions are experimenting and educating themselves with the new innovations brought about by blockchain technology.
  • This bear market results from a crypto market cycle but is brought about by the global macro economy that affected most equities markets. 

There are tell-tale signs of a recovery if it takes place. Accumulation will start taking place when exchange outflow exceeds inflow. This can be observed by monitoring the balance on crypto exchanges. Currently, inflow into exchanges is more than outflow. Cointelegraph reports on June 15 that the Bitcoin exchange inflow is the biggest since 2018. 

The US’s consumer confidence must improve. Consumer Price Index (CPI) and the interest rate must be kept in check. If the US cannot reign in inflation, the possibility of slipping into recession will affect the global equities market. 

Source: Historically, when Bitcoin’s price touches the lower band of the rainbow price chart, it stays there for a few months before making the next move up.

Coins to Watch

Celcius ($CEL) and Near ($NEAR) are mentioned in this segment for readers to exercise caution when trading or accumulating these assets.  

  • $CEL came under heavy selling pressure after rumors of Celsius’s insolvency started to spook the market. 
  • Recently, the token experienced a relief bounce, but that does not imply that it has reached its bottom. 
  • Celsius’s extent of losses has not been publicly addressed. However, if users lose faith in the platform, $CEL will not hold much value. 
  • Celsius must be accountable to its community with full and frank disclosures to restore its integrity and battered image. 
  • $NEAR is a risky asset because of 3AC’s involvement. 
  • The asset has a circulating supply of 720 million coins and a total supply of 1 billion coins.
Source: NEAR Protocol is a promising project, but once the coins in its vesting schedule are unlocked, the selling pressure will affect its price.
  • Ethereum ($ETH) - Ethereum’s volatile transaction cost is still a primary concern for projects building on its network and for its users. 
  • The highly anticipated Merge was bogged down by teething problems and had to be delayed. 
  • In the long run, $ETH will recover, but the best strategy to adopt during this accumulation phase is to deploy the dollar-cost averaging (DCA) strategy.  

Come back next week for another iteration of Weekly Digest: Chung's Picks of the Week from BSC News. Be sure to follow Chung Yee on Twitter.

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