Cryptocurrencies: who are the winners and losers of the crash?

May and June 2022 will be remembered as the time when the crypto market experienced one of the worst falls in its history. If the losers are many, the winners may appear in future innovative projects.

How to qualify the collapse of cryptocurrencies? Far from its record high of nearly $67,000, bitcoin now trades around $20,000. The total capitalization of the market, which approached 3000 billion dollars, is now struggling to surpass the 1000 billion mark, a symbol of a serious loss of confidence. Far from the most ambitious projections, which depended on an upward cycle for these assets, the failure of certain projects has highlighted the limits of these new technologies and their inability to establish themselves as a safe haven.

At the origin of this crash, the Terra Luna case. In a matter of days, the price of the Luna token lost almost 100% of its value, falling from around 80 dollars to just a few cents. The reason for this brutal decline must be found in the ecosystem’s other currency, Terra, a stablecoin. Stablecoins are meant to be non-volatile assets, with a token having to be worth a dollar to run the system. Unfortunately, after a mass liquidation of several wallets and a faulty algorithm, the stablecoin associated with the Terra blockchain could not hold the principle of one coin for one dollar, dragging the Luna project in its entirety.

Several investment funds close to bankruptcy

Until a while ago, Terra Luna was among the most watched and anticipated projects in the entire ecosystem. Its failure put a massive damper on an already depressed market. Since then, confidence no longer seems appropriate and investors have become much more cautious. In fact, a number of cryptocurrency investment funds kept some of their cash in Terra Luna.

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This is the case of Three Arrow Capital, co-founded by Zhu Su, a cryptocurrency entrepreneur who has more than 560,000 followers on Twitter and who defended the thesis of a “super bull cycle”. The investment fund, which managed more than $3 billion in assets, is now struggling with its various partner companies and at risk of bankruptcy.

Celsius Network, a cryptocurrency lending platform, is also struggling. While a few months ago the company was still offering annualized returns of more than 18%, that promise has proven impossible to keep in the current environment. The company has since frozen all assets under its management, amounting to no less than $12 billion. The risk of the US company going bankrupt could deal another devastating blow to the crypto ecosystem.

One could add to the long list of losers people who invested at the wrong time after taking advice from so-called crypto “experts” who are ready to sell the Moon to boost their prospects. But this significant turmoil could very well allow other players to do well.

A crypto savior?

The founder of the FTX platform, Sam Bankman-Fried, is trying to assume the role of “savior” of the ecosystem. By buying up distressed companies and lending hundreds of millions of dollars to others, the head of FTX expands his control. Announcing his partnership with struggling firm BlockFi, the young billionaire explained on Twitter “take seriously our duty to protect the digital asset ecosystem and its consumers“.

The survivors of this crash may become the future giants of the sector. In fact, while the price of cryptocurrencies is collapsing, a number of projects continue to raise millions of dollars, such as FalconX, Magic Eden or the A16z investment fund. “As a bear market veteran, I can tell you that there is no better time to build than now.” Magic Eden technical director Sidney Zhang explained on Twitter.

Investors who become more cautious and fewer followers, projects around Web3 and blockchain can have the opportunity to develop more healthily, away from opportunists. Ultimately, this disruption can allow the entire ecosystem to solve technical problems and deliver innovation without the pressure of investors rushing for a financial return. Can we believe in a new beginning?

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