The combination of macro headwinds and over-leveraged yield strategies has resulted in the forced selling of cryptocurrencies in the last few days, wiping out more than $200 billion in value from the digital asset market, FSInsight said in a report on Tuesday.
- The “takedown of terraUSD (UST) and Celsius is long-term constructive for the industry,” Sean Farrell, head of digital asset strategy at FSInsight, wrote in the report.
- Last month, Terraform Labs' two tokens, terraUSD and luna, collapsed, and last week, crypto lender Celsius Network paused all withdrawals, swaps and transfer because of the extreme market conditions.
- “Such public displays of ignorant capital destruction are often overlooked in the traditional finance industry (or take a very long time to unwind),” the note said, although it also noted that crypto markets have the benefit of “iterating and improving at a more rapid pace.
- ”In regard to Celsius, if yield generation strategies are too good to be true, that is because they probably are," FSInsight said, adding that the crypto lender was “notorious for promoting ‘risk-free’ yields on client assets” that required huge amounts of leverage coupled with risky and illiquid staking mechanisms.
- The difference between assets that are owned and that are held in custody becomes evident only during times of market distress, the report said, and many Celsius users who thought they owned their assets found themselves unable to withdraw during this period of increased market volatility, FSInsight added.
- “In a tight environment, leverage becomes a dangerous double-edged sword that can strike when you least expect,” the note read.
- FSInsight says it is still "constructive" on crypto prices in the second half of the year and this is the time for medium- to long-term investors to consider allocating to bitcoin (BTC) more aggressively.
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