Explained: This crypto winter is different

Good morning! Welcome to The Daily Moon. It’s a brand new week. And Elon Musk is getting sued. Crypto investor Keith Johnson is suing Musk, Tesla, and SpaceX for $258 billion for backing Dogecoin. Johnson calls Doge a “crypto pyramid scheme” and blames Musk for inflating its price.

Moving on, today we talk about how the 2022 crypto winter is different, and stETH is facing tough times ahead. Let’s get started.

Image by Mohamed Hassan on Pixabay 

Explained: This crypto winter is different

This year started with a lot of promise. Bitcoin was trading at ~$47,700 levels. Covid was still on people’s minds and there was a mood of cautious optimism. Just six days into January 2022, there was a crash. Prices crashed to ~$43,000 and then it felt like the bottom fell away. And then started the whispers, 2022 feels like 2018. It’s similar, but it’s not the same.

Crypto in 2018 was a different beast. Let’s rewind the clock a little. Those were the days when there was no pandemic. Initial Coin Offerings (ICOs) were all the rage. And then two big hacks sent shivers down the spine of investors. It was their worst fears realised. Prices fell from $17,000 levels in January 2018 to $3,730 levels by December 2018.

Meanwhile, the 2022 correction has come because of larger uncertainties, such as the new Covid variant and the Russia-Ukraine war. Six months into the year, the global crypto market cap has fallen to $899.36 billion. On Saturday, BTC plummeted below $20,000 for the first time since November 2020.

The 2018 crash isn’t connected In 2018, the crypto market was in its nascent stages. Governments and regulators didn’t know how crypto trading worked. Fears of a regulatory crackdown started affecting prices.

Then came the terrible news. Japan’s Coincheck $500 million in crypto was stolen, and to make matters worse, the breach wasn’t discovered for eight hours. Naysayers had warned about lax crypto security. And they all tweeted, we told you so. The crypto market cap dropped 9% soon after.

Then, another crypto hack happened. This time South Korea’s Coinrail lost ~$40 million in June. And Bitcoin fell 10% to $6,600 levels immediately.

Volatilities continued. Another shocker hit the market when the US SEC rejected Gemini’s Bitcoin ETF proposal. Crypto markets tumbled yet again. JP Morgan first called crypto “fraud”, and then termed it a business risk.

TL;DR? To summarise 2018:

1. Crypto was young, so even small triggers affected prices.

2. Two large hacks.

3. Regulators rejected crypto.

There were other nuances, too. Forking of the Bitcoin network added to the woes. In November 2018, prices slid 37%. The market was booming, yet skittish.

What happened in 2022?A lot has changed over the past five years. Crypto has gone mainstream and regulators cannot ignore it. So, let’s run down what is happening as we speak.

• Omicron: A new Covid variant, Omicron, caused panic globally. Crypto prices started falling from the last week of December 2021 as cases increased.

• ETH Hack: Axie Infinity faced a ~$650 million hack in March 2022. Hackers broke into Axie’s blockchain platform Ronin Network and stole 173,600 Ethereum and 25.5 million USDC.

• Ukraine War: On 24th February 2022, Russia invaded Ukrainian territory, fuelling volatility and uncertainties in global financial markets. The ensuing trade disruptions meant higher inflation worldwide.

• Terra Crash: The algo stablecoin system crashed on May 7 after TerraUSD lost its peg to the US dollar. Sister crypto Luna’s crash followed. Eventually, Terra launched Terra 2.0 to help investors recover their $40 billion loss.

• Celsius Freeze: The crypto lending firm has paused withdrawals because of a fund crunch. This caused more selloffs because $12 billion in capital is frozen.

When’s the recovery? The current crash could be prolonged. Analysts expect the crypto winter to continue for the next two years.

Over the past few months, crypto has started to mirror the stock markets. And enthusiasm has been dented by the Fed rate hikes, which are expected to continue through the year.

Right now, the market is clutching its pearls. But if you go by what Cathie Wood says, HODLers will be the winners.

Ether’s Staked Saga

Staked Ethereum is being dumped. And crypto hedge fund Three Arrows Capital is leading the selloff. Fears loom large over Three Arrows’ ability to repay loans.

Clearing off Three Arrows has been unable to arrange additional capital. Crypto lender BlockFi has reduced its exposure to this hedge fund because of the current capital crunch.

For its part, Three Arrows gave a lukewarm response, stating that it was “working things out”. Now if large stETH holders redeem in bulk, prices will see a steeper crash. Curv’s stETH pool is almost empty, with its total value locked at $621 million. When more investors exit, this pool will shrink further.

What’s next?Right now, the Curve pool only has 110,000 ether left. Staked Ethereum’s price is already ~6% below Ethereum's. The woes for Third Arrows and the Ethereum directive are just getting started.

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Who are we? There is a lot happening in our world. Everything has layers, and each layer has to be carefully peeled so you, the reader, know how the world of money is changing every day. That’s our promise. Help you unpeel the onions, which are the public markets in the US, India, and crypto, so that you know just a little more.