Crypto recreates a crisis it should prevent!

Around 2009, referring to the financial crisis of 2008, Satoshi Nakamoto said: “Banks must have confidence in keeping our money and transferring it electronically, but they are lending it in waves of credit bubbles with barely a fraction in reserve…”. The creator of bitcoin (BTC) then launched a network to prevent such a crisis. 13 years later, we are witnessing surprisingly (or not) the same scenario with registered billions in losses and investors in disarray.

What exactly happened?

In two months, we have witnessed the fall of various pillars in the cryptocurrency industry, which were nonetheless considered robust. Faced with the collapse of the markets, companies that were cryptocurrency lenders faced margin calls. They then made the decision to freeze their customers’ balances. In just a few weeks, hundreds of billions of dollars of digital currencies have disappeared!

that the market for digital assets fell by about two thirds. Some crypto companies have benefited from a form of bailout that secures private lines of credit and buyouts. And all these events are reminiscent of the financial crisis of 2008! Yet it was the same crisis that first got professionals interested in crypto. Investors entered the market because they saw a wealth of benefits in this sector that traditional banks did not offer.

The question that is currently left is to understand what really happened that caused the collapse of the cryptocurrency markets. We already know that the reason for this situation is gearing, although many other factors come into play. Keep in mind that cryptocurrencies like bitcoin (BTC) are precisely focused on reducing this leverage effect in the new financial system.

These companies whose collapse was remarkable!

The most disturbing of the crypto projects that have collapsed is Terra ecosystem (LUNA) with its algorithmic stablecoin TerraUSD. Do Kwon’s project disappeared at an incredible rate. It appears that it was in fact a Ponzi scheme linked to a pseudo-bank called Anchor. As a Ponzi scheme, the scheme could only work when there was an uptrend. So when the markets crashed, the ecosystem sank rapidly. The most impressive thing about this case is that Terra was zero when it collapsed. It must be said that this testifies to a poor design of its token.

The second striking collapse is that of Three arrows capital (known as 3AC). The company was both a venture fund and a hedge fund, while secretly offering a first-class brokerage service. While it was believed that it was dependent on its own funds, it emerged that the company had borrowed colossal sums from various players. Today, 3AC is in liquidation and its customers have lost a lot on their investments.

Many investors believed in unrealistic promises from crypto project promoters. Today, analysts are still trying to gather the necessary elements to fully understand the origins of the collapse of the cryptocurrency market, which was nevertheless born with the aim of preventing global financial crises.

Source: CoinDesk

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Luc Jose Adjinacou avatar

Luc José Adjinacou

Far from dampening my enthusiasm, a failed investment in a cryptocurrency in 2017 only increased my enthusiasm. I therefore decided to study and understand blockchain and its many uses and with my ball to pass on information about this ecosystem.

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