Selected articles of the week:
The sharp price declines in the crypto market are also putting longtime crypto-focused hedge funds and venture capitalists to the test. Three Arrows Capital, one of the most successful crypto trading firms, was founded in 2012 by two former investment bankers focused on proprietary trading in growth markets. Accompanied by a number of profitable investments in the cryptocurrency space, assets under management recently grew to over $10 billion. But Three Arrows Capital’s winning streak appears to be coming to an abrupt end. A potential insolvency proves that a lack of diversification coupled with an excessive leverage factor can have irrevocable consequences.
One misfortune rarely comes alone. In addition to Three Arrows Capital, another centralized provider is in trouble. Celsius is considered one of the largest players in the emerging crypto lending space, managing around $12 billion in assets. Customers of the company often received interest rates above the otherwise available market rates, which is why more and more risk had to be taken on the books in the background. The Terra debacle and the decoupling of Lido’s Staked Ether (stETH) finally gave Celsius the last push. The incident once again highlights the superiority of open, decentralized lending platforms, which have already safely accomplished several crypto crashes through automatic liquidations while maintaining full transparency.
The current market environment is one to be approached with extreme caution. As the preceding events show, the toppling of one domino quickly leads to the next, leaving investors to deal with a lot of uncertainty. So, how do institutional investors behave in times like these? Do they really trade less emotionally than retail investors? Keith Noyes, Chief Risk and Compliance Officer, and Florian Giovannacci, Head of Trading at the crypto prime broker Covario, offer insights into institutional trading trends and the regulatory landscape.
Tether is considered the oldest and currently largest stablecoin issuer in the space. The dollar-pegged USDT token reached a peak market capitalization of $83 billion and still dominates crypto trading pairs on various exchanges. For years, there have been doubts about the company’s actual reserves, with Tether being accused of under-collateralization numerous times. A look at the quarterly reserve reports sheds light into the breakdown of the underlying collateral.
In addition: The US dollar dominates crypto/fiat currency pairs. On the one hand, this is due to the strict regulatory environment of the EU, on the other hand, dollar stablecoins have dominated the field from the beginning. The launch of the Euro Coin (EUROC) by USDC issuer Circle will soon enable currency diversification as well as blockchain-based FX trading over the Ethereum network.