Since June 8, ETH has been in a nosedive, falling from $1,800 per coin to below $1,000 per coin, a drop of more than 40 percent. Coingecko data shows that the price of ETH fell to around $897 per coin on June 19, hitting a two-year low.
As a result, the cryptocurrency bank known as Celsius has been hit by a run on its accounts and is currently suspending user withdrawals. Three Arrows Capital, a leading $10 billion cryptocurrency hedge fund, is facing bankruptcy and is considering selling its assets and seeking a bailout. Major cryptocurrency fund PayPal Financial, rumored to be facing a nine-figure loss, suspended customer redemptions and withdrawals from all of its products a few days ago, citing “unusual liquidity pressures.”.
Most analysts believe that the immediate trigger for the ETH crash was the massive institutional sell-off of ETH at a discount due to the capital shortage caused by the collapse of stablecoin Luna in May.
The liquidity crisis in cryptocurrencies after Luna collapse
Celsius, a cryptocurrency lending platform founded in 2017, was the first institution to fall in the current round of storms, with the institution leading a massive selloff of st ETH.
The immediate impact of the stablecoin Luna crash in May was a massive outflow of funds for Celsius. According to official data from Celsius, there were more outflows than inflows for the first time on the eve of the Luna crash, and over $1 billion was withdrawn in the first week of May.
At the same time, the run on outflows was exacerbated by two Celsius coin drops in June.
On June 16, just before the Federal Reserve announced a rate hike, Celsius was exposed to two lost tokens in the past year. These were the loss of 35,000 ETH on June 22, 2021, by Stakehound (which was not reported) and the loss of over $50 million worth of ETH and BTC in December 2021 from the BadgerDAO hack.
News of the Federal Reserve’s 75 basis point rate hike, which had already caused a tightening of liquidity in the market, put Celsius in even more of a bind when news of the lost tokens broke. The news of the lost tokens added fuel to the fire, with a large number of depositors submitting withdrawal requests and a run on the tokens, leaving Celsius with no choice but to start selling ETH.
Similar to Celsius, Three Arrows Capital was also affected.
Since June, news about Three Arrows Capital’s insolvency, liquidity crisis, and liquidation has been piling up, and on June 15, Three Arrows Capital founder ZhuSu stated on social media, “We are in contact with the affected parties and are committed to resolving the matter.”
There are rumors that Three Arrows Capital had to sell its ETH holdings to alleviate its liquidity crisis.