Percentage problems and rampant inflation raise serious concerns

Written by Marcus Sotiero, Analyst at a UK digital asset brokerage GlobalBlock

Total cryptocurrency market cap fell below $1 trillion for the first time since January 2021. After starting the weekend at $1.16 trillion, the value of all cryptocurrencies reached their lowest level at $940 billion this morning, with bitcoin dropping to Below $24,000.

How did all this happen?

Many believe this is mainly due to the fear surrounding the risk of bankruptcy for one of the largest lending platforms Celsius, after it was widely speculated that they were irresponsible with client money.

They hit UST hard with about $500 million in client money, and also lost about $50 million, when the DeFi Badger DAO protocol was exploited. in time Celsius He declined to comment on the percentage of customer funds held in DeFi protocols. It appears that the biggest issue that Centigrade is currently facing is its position of $1.5 billion in stETH – 1 stETH is a claim on 1 ETH locked onto the Beacon chain. Currently, stETH is trading at a discount of over 5% from ETH, which raises concerns that if customers try to redeem positions, Celsius will run out of cash to pay them off. They take out huge loans against their illiquid positions to pay their clients redemptions, but you may run out of money in 5 weeks.

Celsius announced this morning that it has “paused all withdrawals, swaps, and transfers between accounts. It will continue its operations, and it will continue to update the community. Celsius has taken this action to stabilize liquidity and maintain and protect assets.”

Despite the fear, uncertainty, and skepticism caused by the degree catastrophe, the sell-off began at the start of the weekend on Friday, following the release of US inflation data. The CPI was said to have been 8.6% y/y in May, which is a 0.3% increase compared to April, showing that inflation is rising rather than slowing. I think that’s the biggest contributor to the decline we’ve seen, as it further tightens the Fed – they are now forced to remove more liquidity from the market in order to bring down inflation. When liquidity is dumped, risky assets are hardest hit, including cryptocurrencies.

It is important to remember that this period of constant inflation must pass, and the cryptocurrency industry will become more efficient, as insecure and inefficient companies are being eliminated little by little.

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