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As the stock market hit new lows for the year, the cryptocurrency market correlation was just as strong as it has been in recent months. After the blow to Terra’s collapse last month, the market really took off this week. So let’s first answer the question that surely interests investors of Rivemont Crypto Fund the most. More than half of the positions were sold as support broke at $28,500, avoiding a significant portion of the pullback. At the time of publishing these rules, the fund is 65% cash.

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After going public less than a year ago, Coinbase announced it was cutting 18% of its workforce, noting that economic conditions are “changing rapidly” and the world appears to be slipping into recession. CEO Brian Armstrong said the company was growing too fast at the start of the expansion period. “It is now clear to me that we have hired too many people,” he wrote. Its competitor is no exception to the trend, cutting 5% of the company’s workforce. The Gemini, Bitso and Buenkit exchanges have all made such announcements in the past week.

Aside from the very tough week in the markets, it is undoubtedly the decision of the crypto lending platform Celsius on June 12, announcing that it was suspending all withdrawals on its lending platform, citing “extreme market conditions” and the need to to stabilize liquidity”, which was noticed. Within hours of the announcement, Celsius’s native token CEL fell 70% in one. CEL’s downward spiral occurred amid a massive meltdown that saw the total capitalization of the cryptocurrency market falling to less than trillion, more than two-thirds of its all-time high of $3 trillion, while that bitcoin has fallen to levels not seen since 2020.

Recall that the Caisse de Dépôt du Québec had invested $150 million from the public sock in the Celsius network, citing the search for rough diamonds and rejected direct direct investment in bitcoin. These are words that are about to become obsolete, as well as milk…

What exactly is happening? The short-term cause of Celsius’s problems appears to be Lido’s Staked Ether (stETH), a token linked to Ethereum’s ETH. stETH represents ETH locked to the chain Ethereum 2.0, a parallel chain to the main Ethereum blockchain that will eventually combine with the main Ethereum network in an event known as a merger, creating the network of a consensus mechanism proof of work to a mechanism proof of commitment† On decentralized funding platforms, stETH is often used as collateral to borrow ETH. The problem is that stETH has recently lost its peg to ETH, threatening these positions. With holders selling and the date of the merger still uncertain, there is now heavy selling pressure on stETH. However, in an effort to deliver on the platform’s promises to users, the Celsius platform has locked up a lot of capital in stETH, so a loss of stETH peg could trigger a surge in redemptions, triggering a liquidity crisis. †

In the meantime, a lot of money has left Celsius. During the first half of 2022, the total number of digital assets locked to the protocol grew from approximately $24 billion to $12 billion. The biggest problem with Celsius’s business has been mounting evidence that the company was taking extreme risks with user funds that often could not be properly quantified. Celsius is at risk of a margin call of 17,900 wBTC (packed Bitcoin on the ETH network). The liquidation price level was $20,272 before Celsius filled the vault with additional collateral, bringing the liquidation price to $18,300. The main problem is that this level of liquidation is completely transparent and opportunistic speculators can sell arbitrarily to force Celsius to sell…

Meanwhile, after the shooting freeze on Sunday, the company reportedly turned to restructuring lawyers. First and foremost, Celsius is looking for funding opportunities from investors, but the New Jersey-based company isn’t ruling out other solutions, including financial restructuring, according to the WSJ report. The company finally broke the silence yesterday by simply stating via Twitter that the company “is working as quickly as possible and will share information as soon as it is appropriate. Acting in the best interests of our community remains our top priority.”

Another example of the important lesson in the industry. If it’s not your keys, it’s not your tokens. At the same time, note that TRON’s algorithmic stable token, the USDD, also lost its peg to the US dollar this week, trading at $0.97 per dollar. In short, the incredible uncertainty generated by all these conditions adds to an already strong downward pressure, with the term recession only vaguely mentioned. It seems that a massive liquidation wave of margin positions is almost inevitable.

MicroStrategy loses more than $1 billion today on its business bitcoin reserve bet. Many fear that the company itself could get a margin call, which could put 129,218 BTC in selling pressure in the markets. However, Michael Saylor has lost none of his faith in digital assets and the positioning of his company. “When MicroStrategy adopted a Bitcoin strategy, it anticipated volatility and structured its balance sheet so it could stay in adversity #HODL.” he said on Twitter. He explained contingency plans, noting that even if all of the available BTC were pledged as collateral for the loan — implying a BTC price below $3,600, the March 2020 low — the pool of available cash would not stop there. “It’s just FUD,” he told mainstream media in a later interview on the matter. “We started with $5 billion in collateral, we borrowed $200 million against that collateral, which is a loan-to-value ratio of 4%. If bitcoin fell 95% of that figure, we would have to provide additional collateral. He further qualified the issuance of a required margin call as “nothing at all”.

Is the worst over for bitcoin now? No one can say that for sure, but there are several reasons to believe it. First, the price is currently below the 200-week moving average, an area that has served as a support in the past and where the price has never stayed below for long.

We should also consider that despite the current decline, bitcoin’s value proposition only continues to improve. As Anthony Pompliano mentions in this excellent letterThe bitcoin network hash rate has more than quadrupled in the past three years. It continues to hit record levels today, proving that the network has never been more secure.

Looking at the on-chain bitcoin distribution, we see wallet addresses with 0.01 bitcoin, 0.1 bitcoin and 1 bitcoin continue to hit record highs. He adds the interesting statistic: “Another way to look at it is the long-term and short-term cost basis for holders (measured by 155 days of holding). You can see here that Will Clemente pointed out that these two metrics almost intersect, indicating that long-term holders are in a dominant position – the cost base for long-term holders is rising, while the short-term holder’s term is declining. If this continues and the STH breaks below the LTH, historically it has the potential to buy bitcoin for generations. We are getting closer.”

A majority of long-term holders could also finally break the correlation with bitcoin’s stock market and finally let it shine as an asset of protection in an inflationary environment, which it has so far failed to do.

In the short term, all markets are waiting for the US Fed meeting. It is certain that an increase will be announced this afternoon, but how high will it be? For once, there is no consensus. Will worrying inflation data released on Friday push for a higher-than-expected 50-point rise? The markets seem to be predicting a 75-point rise, while some analysts believe a 100-point rise is absolutely necessary right now. In short, here’s another day that could shine.

This article is brought to you by Fonds Rivemont. The Rivemont crypto fund is the first and only actively managed cryptocurrency fund in Canada. RRSP and TFSA are eligible. Accredited investors can learn more here

Disclaimer: This column does not necessarily reflect the views of CryptonewsFR and does not constitute investment advice or instructions to trade.

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