3AC Goes Down, Market Teetering at 2017 Top | RTWM 1.37

By Zacharias | RekTimes | 17 Jun 2022

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RekTimes Weekly Markets

17 June 2022: The cryptoeconomy has entered a full recessionary crisis mode after a substantial 30% move down in the market that has since found at least a temporary holding at the 2017 bull market top.

It is not only the cryptoeconomy that is struggling however - the global economy is also reeling after significant rate hikes have made borrowing increasingly expensive, putting enormous pressure on other assets classes, including but not limited to:

Housing
Stocks
Commodities
Securities
Cryptocurrencies & Digital Assets

On the crypto/web3 side of things, there are some large companies that are now publicly struggling with this significant market contraction. Last week, we outlined the details surrounding the Celsius insolvency. They have managed to move down their liquidation price on Bitcoin & other assets impressively on their Maker & Aave loans.

The list of cryptocurrency & web3 companies that have collapsed or are mightily struggling are outlined below:

Three Arrows Capital (3AC)
Coinbase
BlockFi
Terra Luna (collapsed technically twice)
Celsius

Key Takeaway - Don't underestimate this recession, no one is safe

'Crypto Winter' is Upon Us

Outside of the typical retail market liquidations & price collapses, some of what were considered web3's mightiest have fallen on hard times. Immediately following Coinbase's offer rescindment and hiring freeze, they announced that 1,100 people (roughly 18%) from their company was laid off. Coinbase is joined by Celsius (major insolvency crisis) and now BlockFi, two other crypto 'banks' that are struggling for liquidity.

The biggest market shock of this cycle is that of 3AC - thought to be one of the largest crypto/web3 investment firms in the space that have put money into many different DeFi & cryptoeconomic protocols over the past two years. With 3AC now effectively insolvent, this is a huge loss for the crypto market in general.

According to on-chain data, 3AC was a major holder at least the following projects:

Bitcoin (BTC)
Ethereum (ETH)
Avalanche (AVAX)
Aave (AAVE)
Terra (LUNA, UST)
Solana (SOL)
NEAR Protocol (NEAR)

The single biggest nail in the 3AC coffin was the collapse of Terra. Data suggests that 3AC took a loss of ~$500 million when both UST and LUNA tokens collapsed in value. The loss of a $40 billion crypto ecosystem sent shockwaves throughout the cryptoeconomy that is only now beginning to really show its ugly side.

What is Next?

There is one protocol which undoubtedly deserves to be mentioned here - that is Tether Holdings (USDT). Back in November 2021, RekTimes conducted its own investigation and study into the 'FUD' and allegations surrounding Tether.

Now, there is every right to be skeptical of the USDT stablecoin. Remember - Tether refuses to verify that it is backed fully and to what extent the collateral for USDT even is. It is worth noting that Tether has come out and explicitly denied any exposure to 3AC and stated that its holdings with Celsius were "liquidated with no losses."

The founders of Terra, Celsius, and 3AC also gave similar statements sometimes mere days before their companies collapsed completely. Tether has thus far provided redemptions, but again - it is impossible to verify that they are 100% backing USDT.

The facts - investors have pulled out literally billions in value from USDT in the past 48 hours surrounding this speculation. This is exactly the problem. The speculation surrounding Tether is entirely driven by Tether Holdings themselves - why?

Because they refuse to get audited or verify their reserves, no one knows if the USDT they are holding is backed by anything. Fear is driving this market. If people feel like there is a probability the reserves don't match the outstanding value of USDT, this is exactly what causes a bank run. If Tether IS utilizing a fractional reserve model, in a bank run - last one to the vault gets nothing. Again, this is driven entirely by Tether Holdings refusal to verify their reserves.

It is highly recommended that investors move out of USDT and into safer, verified stables like USDC. If there are no real problems with Tether, there should be a 1:1 swap here to reduce a tremendous amount of risk. This is a no-brainer play.

Our goal is to help market participants not get rekt - from an unbiased perspective, we feel it is the safest play to move out of USDT to avoid any unnecessary risk exposure as we cannot verify their reserves.

Please read our investigation into Tether here for more information.

Further Reading - In the Know

Chainlink (LINK) Releases New Road Map, Staking (Chainlink)

US Federal Reserve Raises Interest Rates by 0.75% (Yahoo)

US Inflation Continues to Rise at 8.6% YoY for May 2022 (NY Times)

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Crypto-Economy & Markets

The past week in the cryptoeconomy was absolutely brutal for all. With the forced-selling of some of the space's most prominent investment firms, prices collapsed considerably over the last seven days. Coins went down anywhere from 20% to 40%.

Market sentiment fell sharply from 13 points down to 9 points - still a state of 'Extreme Fear'.

The full Fear & Greed Index chart is shown below:

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Fear & Greed Index

Total Market

The Total Crypto Market fell considerably over the past week, minting a weekly candle down to the 200 WMA at roughly $870 billion in total value. This was a tremendous loss, though was actually driven heavily by the 'market movers' in Bitcoin & Ethereum. This is highly durable long term support and has been the level RekTimes has been watching literally for months now.

The narrative that the market cannot and will not fall lower than a previous cycle peak is being put to the test right now. The Total Crypto Market Cap is down over 71% from all time highs.

The Total Crypto Market Cap is shown below:

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Bitcoin (BTC)

Bitcoin got absolutely throttled over the past week, falling 30%+ and actually penetrating straight through its 200 WMA major long term support. This is excessively bearish for Bitcoin, raising the potential that BTC revisits its 2017 high around ~$19,500.

There is an obvious argument for a reversal at this point, but with the macro-environment deteriorating with every passing day it is a bet that requires a high risk tolerance. It is worth noting that Bitcoin is also down 70% from its all time high, so regardless of strategy played at these levels - Bitcoin is relatively cheap.

The Bitcoin/USD Weekly chart is shown below:

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Ethereum (ETH)

Ethereum had an even worse week than Bitcoin. The coin fell 38%, outpacing Bitcoin's decline. Ethereum is interesting here because it has not only fallen straight through its 200 WMA and reached its long term monthly support - it is well under its 2017 high of ~$1376. So - in a way, the narrative that coins will not depreciate below previous market peaks has already been negated on Ethereum.

The important takeaway here is that Ethereum currently rests at or around major areas of long term support. A break through the $1000 level on Ethereum would be absolutely disastrous for the market. ETH is 77.5% down from all time highs.

The Ethereum/USD Weekly Chart is shown below:

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True Total Altcoin Market (excludes Bitcoin, Ethereum)

The most interesting finding within the market this week is that of the True Total Altcoin Market. Comparatively to Bitcoin & Ethereum, the altcoin market stood quite well. Altcoins stand with a market cap of ~$350 billion, down 69% from all time highs.

So far, altcoins have not quite reached the 200 WMA but the altcoin market does sit exactly at its 2017 high.

There is a high probability of deeper selling within altcoins, especially if Bitcoin or Ethereum mount some form of selling resistance or the global economy does not recover.

The True Total Altcoin Market Cap is shown below:

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Markets Analysis

The markets took heavy hits over the past week as the bear market that began in November 2021 continues to worsen alongside a crumbling global economic environment. Bitcoin is at substantial risk of a deep collapse at current levels without a sizable reversal. BTC must reclaim the ~$22,500 level to remain above support. Otherwise, there is a probability Bitcoin falls to its monthly trendline stationed around $7,700.

Ethereum is an even more interesting setup, having penetrated its 2017 high but remaining above support. A failure on ETH to hold current levels and we will undoubtedly see triple digit ETH for the first time since January 2021 (yeah - only January 2021).

Altcoins, while outperforming the big coins of ETH and BTC, almost certainly have more pain ahead. There is a probability that these coins do manage to hold onto valuations, though not all of them will. Projects must adapt rapidly and fix major issues to remain relevant in a market with no patience or liquidity left.

Buying at current levels holds a respectable probability of being profitable in the medium term and a high probability in the long term. At this point with present setups however, this should only be considered a high-risk play. There is reason to believe we could see another 50%+ decline on multiple assets, including Bitcoin & Ethereum.