Market update

In our last weeks newsletter, we discussed about other firms facing the heat due to the crypto meltdown – Singapore based crypto hedge fund firm 3AC (Three Arrow’s Capital) being one of them. With positions of major holdings – analyst claim that 27 key holdings are down almost 60%, the firm is facing liquidity issues.

3AC had debt from several lenders who posted margin calls on positions being held as the markets began to crash. However, due to liquidity issues 3AC couldn’t meet the requirements which lead to large liquidations. Crypto exchanges such as Bitmex and FTX had liquidated the crypto firm; BlockFi and Genesis had also revealed that liquidations and mitigations of losses were ongoing with Genesis saying the losses would be netted against its balance sheet. After liquidations, Bitumen is apparently still being owed $6 million by 3AC.

Trouble for 3AC had started with their huge exposure to LUNA – which is speculated to be more than US$200 million and as high as US$450 million. When Do Kwon’s Luna Foundation Guard (LFG) made another $1.5 billion Bitcoin purchase on May 5 to prop up Terra’s stablecoin reserves, it was with the help of 3AC. This further increased their problems. After rumours of the insolvency a couple of firms made a bee-line to exit the firm which include BitMEX, Voyager Digital and others like Finblox and Derbit who have taken other measure to ease liquidity pressure on their respective platforms.

FTX CEO Sam Bankman-Fried, claims that this could have been avoided had 3AC been an on-chain protocol that was transparent. 3AC has been exploring options, including the sale of assets and a bailout by another firm. They have also hired legal and financial advisers “to help work out a solution for its investors and lenders.”

There is fear over the spreading contagion that is affecting firms starting with LUNA, Celsius and now Three Arrow’s Capital and the wide spread impact on other firms ability to absorb the losses and continue to be liquid. The below two firms in the news facing liquidity issues are

• BlockFi – After laying off almost 20% of their staff to cut costs the firm has managed to secure a revolving credit facility of US$200 million from crypto exchange FTX. The firm recently liquidated a large client’s overcollateralized margin loan to mitigate risk (rumoured to be 3AC). The credit facility will help BlockFi to satisfying all withdrawal requests.

• Voyager Digital – The firm has an exposure of US$661 million to 3AC and has requested for repayment of the entire amount by 27th of June. This news sent the shares of the company plummeting more than 60% and the company facing liquidity issues. They have managed to secure a line of credit from Alameda Research (trading outfit formed by FTX founder Sam Bankman-Fried) of $485 million in cash and Bitcoin.

• Other smaller platforms like Babel Finance and Maple Finance are facing similar liquidity issue and have stopped withdrawals on the platform for now.

Among all the turmoil Nexo (crypto lending platform – rival of Celsius) one of the firms that stand tall and can boast that it has always run a sustainable business model that didn’t engage in risky lending practices, as a result, it now occupies a position of “unmatched stability,” meaning that it is uniquely placed to step into the breach to help shore up struggling firm.

‘Fortune favours the brave’ – Nexo has hired Citigroup to advise them on the acquisition of assets, that can now be acquired at heavy discounts. This move was well accepted that caused NEXO to plunge nearly 25%. However, Nexo claim 100% liquidity to meet its US$4.96 million debt obligations.

Ethereum’s Gray Glacier

With ‘The Merge’ approaching soon in a couple of week, wherein the Ethereum blockchain will move from a “Proof-of-Work” to “Proof-of-Stake” consensus; developers have introduced the Gray Glacier. This will push back the ‘Difficulty Bomb’ by 7000 nodes or roughly 100 days – allowing developers to test for a perfect merge before Ethereum 1.0 enters the ice-age, where in it will become very complex to solve the algorithms and time consuming, forcing users to migrate.

This will have and adverse impact on Lido’s staked ETH (stETH) – with no clear timeline on the merge of the two networks.

Bitfarm sells 3,000 Bitcoins abandoning their HODL strategy

Signs that we are in the beginning of a Crypto bear market, coupled with a global equity bear market and the looming recession. With the Bitcoion price dropping drastically in the last few weeks – it is now unprofitable for a miner to min BTC as the costs to mine 1 BTC is approx. $25,000. This has forced many miners to sell off their GPU’s in the market as prices have also crashed.

BTC earned from mining operations constitute a sizeable percentage of the total BTC holding and firms like Bitfarm are making a U-turn on their HODL (hold on for dear life) strategy. This has put more downward pressure on BTC and causing mining operations to get more unprofitable.

Citigroup to Develop and Pilot Crypto asset Custody Capabilities

Citigroup will partner with METACO (Switzerland based company) to develop a platform to enable clients to store and settle digital assets seamlessly and securely. Citi plans to fully integrate METACO’s bank-grade digital asset custody and orchestration platform, Harmonize, into its existing infrastructure, to develop and pilot digital asset custody capabilities.

Citigroup has been witnessing an increasing digitization of traditional investment assets along with new native digital assets. Hence in order to support digital asset classes that are becoming increasingly relevant to their clients Citigroup is piloting this project.

Funding and Takeovers Updates

• EBay Acquires UK-based NFT Marketplace KnownOrigin

E-Bay one of the most popular e-commerce site with almost 100 million visits per month has acquired Manchester Based “KnownOrigin” which is a NFT marketplace. Founded in 2018 the platform has $7.8 million in total trading volume and 5,187 traders who have used its services since inception – in comparison to OpenSea’s $30 billion and 1.83 million users since incorporation in 2017. Ebay has acquired the firm for an undisclosed amount and would aim to leverage its community to increase traffic to the platform and compete with OpenSea.

• Uniswap Labs Buying Ethereum NFT Aggregator Genie

Genie the NFT Aggregator App has unique product offerings

1. The ability to purchase multiple items in one transaction – only few provide this service
2. Tools that allow traders to see listings on rival marketplaces – no one offering this service

The acquisitions will help with Uniswap’s push into NFTs, the company said in a statement as it plans to add a new tab specifically for NFTs to its main site later this year. It also plans to add NFTs to its developers’ APIs and widgets.

• FalconX Secures $150M – Series D Funding

FalconX – Institutional-level digital asset platform, and crypto brokerage
Funding raised till date – US$430 million. Valuation at US$8 bilion more than double it previous round valuation of US$3.75 billion in August 2021.
Investors – GIC, the Singaporean sovereign wealth fund, and Facebook’s Eduardo Saverin-backed B Capital Group; Other include Tiger Global Management, Adams Street, and Thoma Bravo