Around 2009, referring to the 2008 financial crisis, Satoshi Nakamoto said, “Banks should be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve…”. The creator of bitcoin (BTC) then launched a network to prevent such a crisis. 13 years later we are witnessing surprisingly (or not) the same scenario, with billions in losses and investors in disarray.
What exactly happened?
In two months, we have witnessed the fall of several pillars of the cryptocurrency industry that were nevertheless considered robust. Faced with the collapse of the markets, companies that were cryptocurrency lenders faced margin calls. They then made the decision to freeze their customers’ assets. In a matter of weeks, hundreds of billions of dollars worth of digital currencies are gone!
the digital asset market declined by about two-thirds. Some crypto firms have benefited from some form of bailout, securing private lines of credit and buyouts. And all these events are reminiscent of the 2008 financial crisis! Yet it was the same crisis that caused professionals to take an interest in crypto for the first time. Investors entered the market because they saw a plethora of benefits in this sector that traditional banks did not offer.
The question that currently remains is to understand what really happened, what caused the collapse of the cryptocurrency markets. We already know that the origin of this situation is lever, although many other factors come into play. Keep in mind that cryptocurrencies such as bitcoin (BTC) are precisely aimed at reducing this leverage in the new financial system.
These companies whose collapse was remarkable!
The most disturbing of the crypto projects that have collapsed are: the Terra Ecosystem (LUNA) with its algorithmic stablecoin TerraUSD. Do Kwon’s project vanished with incredible speed. It looks like it was actually a Ponzi scheme linked to a pseudo bank called Anchor. As a Ponzi scheme, the scheme could only work if there was an uptrend. So when the markets went down, the ecosystem quickly sank. The most impressive thing about this case is that Terra was zero when he collapsed. It must be said that this shows a bad design of his token.
The other notable collapse is that of Three arrows capital (known as 3AC). The company was both a venture capital fund and a hedge fund while secretly providing a top-notch brokerage service. Though it was thought to rely on its own funds, it turned out that the company had borrowed colossal sums from various players. Today 3AC is in liquidation and its clients have lost a lot on their investments.
Many investors believed in unrealistic promises from crypto project promoters. Today, analysts are still trying to gather the necessary elements to fully understand the origins of the collapse of the cryptocurrency market, which was nevertheless born with the aim of avoiding global financial crises.
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Luc Jose Adjinacou
Far from dampening my enthusiasm, a failed cryptocurrency investment in 2017 only heightened my enthusiasm. I therefore decided to study and understand the blockchain and its many applications and to pass on information about this ecosystem with my pen.