Bitcoin in 2022 lost about 58% of its value, demonstrating the worst quarterly performance since 2011. In general, analysts identify several main reasons for the development of a «bearish» trend in the cryptocurrency market. There are also macroeconomic problems, such as rising interest rates and rapid inflation, and a lack of liquidity, which led to the liquidation of the Three Arrows Capital foreign exchange hedge fund and the temporary suspension of the possibility of withdrawing funds by clients of the Celsius credit firm. The collapse of the algorithmic stablecoin Terra USD also hurt the crypto market, which caused a shock in the industry. Let's take a closer look at the 5 reasons that led to such a significant and prolonged decline in the digital currency market. Macroeconomic pressure During the quarter, the US Federal Reserve conducted two sharp interest rate hikes to combat rampant inflation. This raised fears of a recession in the United States and other countries and hit stocks, in particular, the securities of fast-growing technology companies. And as you know, bitcoin is closely related to the price movement of US stock indices. The collapse of Terra USD The collapse of the Terra algorithmic stablecoin and the Luna subsidiary token caused a real shock in the industry. At some point, Terra lost its peg to the US dollar, falling below its current value. This led to the collapse of the Luna token associated with Terra and affected the entire crypto industry, in particular, unpleasant side effects for the cryptocurrency hedge fund Three Arrows Capital, which had access to Terra USD. Lender Celsius suspended withdrawals for customers in June The company offered users an income of more than 18% if they deposited cryptocurrency in Celsius. Then she lent this money to players in the cryptocurrency market who were willing to pay a high rate to borrow this money. However, the fall in prices for many cryptocurrencies has called into question the effectiveness of such a model, and Celsius itself has suspended the withdrawal of funds, citing extreme market conditions. Liquidation of Three Arrows Capital Three Arrows Capital is one of the most famous hedge funds specializing in cryptocurrency investments that had a 10-year history. The fund also faced the collapsed Terra USD stablecoin and the Luna token, as a result of which it failed to fulfill the margin requirement and declared default in the amount of more than $660 million. Eventually, Three Arrows Capital was liquidated. The conflict between CoinFLEX and the «Bitcoin Jesus» Cryptocurrency exchange CoinFLEX suspended the possibility of withdrawals by clients last month, also citing «extreme market conditions» and the fact that the client's account became negative. This client was a well-known crypto investor Roger Ver, also known as «Bitcoin Jesus» for his evangelical views on the crypto industry at the dawn of its existence. The crypto exchange stated that Ver owes the company $47 million, but the client denies these claims. The conflict continues to this day: CoinFLEX has even released a new token called Recovery Value USD (or RUUSD) to raise $47 million to resume withdrawals, and offers a 20% rate for investors willing to buy and hold this currency.
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