Crypto Liquidity Crisis Has Induced Significant Results

26-07-2022

Currently, the crypto market is experiencing a so-called liquidity crisis that has a highly negative effect not only on crypto lenders but on major exchanges as well. It is not entirely clear who became the victim of this process since it takes some time to correctly guess which companies experienced the worst results when this crisis began. The major starting point of this crisis was the collapse of UST and Luna in May which are sister tokens and this process has caused an inexplicable disappearance of 5 billion dollars.

Later, it became clear that Three Arrows Capital, which is a hedge fund, had invested a big portion of its funds in Luna. Also, it is important to note that this money was not entirely in the possession of the company, since Three Arrows Capital had borrowed funds from various crypto firms, which further exposed a sector that is already dominated by low-risk management levels. Given the fact that Bitcoin has experienced a significant drop in value, the hedge fund was unable to pay its creditors. So, it was necessary for Three Arrows Capital to lend money from different companies in order to compensate its customers.

Crypto Market Crisis Has Damaged Numerous Companies

It goes without saying that this process has induced serious consequences and the majority of investors started to panic. As we have said, Three Arrows Capital took a loan from different firms including Voyager Digital, BlockFi, and Babel Finance and the total amount of this loan exceeded 600 million dollars.

As a result, as we read here, customers started to panic and rushed to withdraw their funds from this firm as soon as possible. However, their attempt was not successful since the lenders did not have sufficient cash, so the majority of costumes started to completely suspend withdrawals and every other transaction as well.

The most famous example among these lenders is Celsius Network which has frozen assets on the platform by manipulating the price of the crypto tokens. This has resulted in major events since the company was sued by its own former investment manager and was forced to file for bankruptcy.

As we have highlighted above, this crisis had a highly negative effect on crypto lenders, but large cryptocurrency exchanges have also experienced bad results. This mainly applies to Blockchain.com which has landed a total of 270 million dollars to Three Arrows Capital. As we read in the notice released by the CEO, they expect that this money might be already lost but in their opinion, this will not have a significant effect on its liquidity.

What’s more, officials of Blockchain.com believe that this is not a serious process as the platform still stays liquid and maintains satisfied customers. As for the other big crypto exchanges, they have stated that Three Arrows Capital did not land a cent from them! As you can tell, the devaluation of Bitcoin price might cause significant results in the whole market and affect as big firms as Three Arrows Capital!

What To Do When Crypto Market Is In Crisis

It is crucial to learn what steps you need to apply when the crypto market experiences a liquidity crisis. This is especially important for novice investors since they often panic and start making rushed decisions which often end up with highly negative outcomes. Bear in mind that this is not an easy process as oftentimes experts fail to accurately predict the future events in this market and foresee the price movement of cryptos. So, you need to constantly observe the situation in order to avoid losing a significant portion of your funds.

First of all, it is essential to remember that cryptos have a highly volatile nature. This means that their price might change drastically even in a single day and you might get totally devastated when you wake up the next day. As of today, the Bitcoin price is 21.693$ which is one of the lowest numbers in recent years. Such a huge price fall was induced by several factors, but mainly because serious political and economic events took place in the world. Also, you should know that when the price of Bitcoin is changed, other cryptos follow its path as well because they are measured in Bitcoin. So, when you are in control of its price on a daily basis, there are fewer chances of losing your money.

What’s more, you have to search for trustworthy trading platforms where you will have a safe environment for your trading processes. In today’s world, we encounter a vast number of scammers in the market trying to steal investors’ money by deceiving them with generous proposals. Hence, you need to check the legitimacy as soon as you enter the platform and once you are assured of available licenses, only then do you have to register and start trading there. By doing so, you will significantly decrease the risk of losing your funds and will be able to withdraw them in case a crisis happens in the market.