Celsius Troubles, UST Collapse May Help Crypto Long Term, FSInsight Says

The firm sees good buying opportunity now for bitcoin.

AccessTimeIconJun 15, 2022 at 10:16 a.m. UTC
Updated Jun 15, 2022 at 6:35 p.m. UTC

Will Canny is CoinDesk's finance reporter.

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.

DISCLOSURE

Please note that our privacy policy, terms of use, cookies, and do not sell my personal information has been updated.

The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups. As part of their compensation, certain CoinDesk employees, including editorial employees, may receive exposure to DCG equity in the form of stock appreciation rights, which vest over a multi-year period. CoinDesk journalists are not allowed to purchase stock outright in DCG.

CoinDesk - Unknown

Will Canny is CoinDesk's finance reporter.

CoinDesk - Unknown

Will Canny is CoinDesk's finance reporter.

Trending

1
CoinDesk - Unknown
Bitcoin Drops to Nearly $19K as Fed Renews Inflation Warnings

Central bank leaders warned Wednesday that inflation is going to last longer than some people anticipated.

CoinDesk - Unknown
2
CoinDesk - Unknown
Harmony Horizon Exploit Linked to North Korea; $10M Bounty Offered in 'Global Manhunt'

Developers said the team was “gathering wallet data” and strategizing plans based on the impact that the incident caused on users.

CoinDesk - Unknown
3
CoinDesk - Unknown
Singapore Central Bank Reprimands Three Arrows Capital for Providing False Information

The fund also exceeded the threshold of assets it could manage in Singapore, according to the central bank.

CoinDesk - Unknown
4
CoinDesk - Unknown
First Mover Asia: How Traders Are Shorting Tether Stablecoins; Bitcoin Falls but Holds Above $20K

Hedge funds are increasingly betting against USDT in anticipation of it losing value amid concerns about the coin’s reserve backing and systemic risks; ether drops.

CoinDesk - Unknown