First Mover Asia: Funds Lost Billions in the Terra Collapse. Here are the Ongoing Effects; Bitcoin Sees Red

While stocks spiked in Monday trading, major cryptocurrencies continued their recent trudge through a red gloom.

By early afternoon, bitcoin had fallen almost 4% over the past 24 hours to the low end of the $29,000-$30,000 range it has occupied for the nearly two weeks since the UST stablecoin and LUNA token that supports it imploded.

The largest cryptocurrency by market capitalization, has dropped 26% from its high this month near $40,000 and roughly 55% since reaching its record peak last November. 

Ether, the second largest crypto by market cap, was down approximately 3.5% over the same period and changing hands a little below $2,000.

Most major cryptos spent much of the day in the red with AVAX recently off over 8% and GALA, ALGO and MANA each down more than 6% amid ongoing investor fears about inflation and a possible recession as central banks tighten monetary policy. Trading was choppy underlining these concerns

"We don't have earnings [this week}, we haven't had a stablecoin lose $48 billion, and we haven't had a Presidential Executive Order," 3iQ Digital Asset's Head of Research Mark Connors told CoinDesk, adding: "It's about inflation and that's uncertain. So we are rangebound."

Stocks traveled a different paths, as they've done for most the past few days, rising after senior executives at JPMorgan Chase said that U.S. consumer credit market was in good shape short-term. 

The S&P 500, which spent a large portion of Friday in bear market territory, meaning that the index was trading at least 20% lower than its previous high, increased 1.8%.

The Dow Jones Industrial Average and tech heavy Nasdaq climbed 1.9% and 1.5%, respectively. Last week, the indices plunged almost 3%.

Cryptos have spent much of the year tracking stocks so the latest separation represents at least a small twist in their evolving relationship. 3iQ's Connors said that digital assets will likely remain rangebound at least until the U.S. 

Bureau of Labor Statistics issues its next consumer price index report (CPI) in early June. The CPI may show if inflationary pressure is waning.

"For right now, you might have some people pushing uncertain markets to see what breaks but I don't think there will be breaks either way," Connors said.

The destruction of the Terra protocol has meant a significant hit on the balance sheets of all of its investors. 

Data about the carnage is available to view on Block explorers, including Korean VC firm Hashed’s staked tokens, which were at one time worth over $3.5 billion.

Hashed’s loss on luna and other Terra ecosystem tokens may not have adversely affected its cash position.

Hashed got most of these tokens through its investment in Terraform Labs, and likely bought more of the tokens as it peaked – and probably sold some too.

But for any liquid crypto fund, cash is periphery. Cash is boring. Cash doesn’t have the same amount of leverage.

Three Arrows Capital is licensed to manage assets of not more than SGD250 million (US$181 million) for its Singapore entity, according to a filing with the Monetary Authority of Singapore.

It also has an entity in the British Virgin Islands, with which it has split the GBTC position equally, according to U.S. Securities and Exchange Commission filings. Even the 50-50 split would exceed the amount that Three Arrows Capital is authorized to manage.

Three Arrows likely accomplished this through leveraged bitcoin, as BTC has always been an option to buy into the GBTC.

Three Arrows wanted to do this because its interest in GBTC is a premium harvesting play, exploiting its current discount with a hope that it returns to a premium or at least to market value.

Three Arrows’ history has shown this wasn’t a wise investment because of the market downturn through most of 2022 and GBTC’s structural problems.

Let's return to Hashed and the other VC firms that held Terra’s tokens in their liquid portfolios.

One scenario is that some firms used the LUNA they had staked as collateral for the leveraged purchase of further tokens for both trading, and to invest in funding rounds that used a Simple Agreement for Future Tokens (SAFT) or another investment vehicle.

Post a Comment

Previous Post Next Post