The role of Terra, Celsius Network and Three Arrows Capital in the downward spiral of the crypto market.

At the time of writing, Bitcoin has fallen below the $20,000 mark and Ethereum has fallen below $1,000. For weeks now, the entire market seems to have been caught in a spiral that doesn’t seem to want to end, while more and more players face forced liquidations after the prices of all crypto assets crash.


Forced liquidation occurs when investors unexpectedly and unwittingly have to close positions in bitcoin derivatives (such as futures and options) when there is insufficient collateral. This type of forced selling puts downward pressure on the price, which can trigger further liquidation, hence the “cascade”. This cascade was marked by a series of corporate bankruptcies or insolvency threats, from Terra to Celsius to Three Arrows Capital.


Events surrounding the collapse of the Terra protocol and the USD-backed algorithmic stablecoin UST are widely reported in the cryptosphere and mainstream financial media. UST fell to zero after massive withdrawals under the Anchor protocol, one of the centerpieces of the Terra ecosystem, which promised returns of around 18% to UST custodians. Following these withdrawals, billions of UST were burned to mint LUNA tokens at a rate too fast for the pegging algorithm. Attempts to restore the peg forced Terraform Labs to dump their bitcoins, leading to strong selling pressure in the markets. But the story doesn’t end there, as Terraform Labs had connections with many market players, including Celsius and Three Arrows Capital.


Less than a month after the fall of the UST, the crypto lending and borrowing platform decided to suspend withdrawal, account transfer and exchange operations, sparking anger and misunderstanding among users. On-chain data shows that over the past few months, Celsius has used a variety of DeFi protocols, including Anchor and two of the most popular Ethereum protocols, Lido and Curve, to leverage client funds to earn a return of 17% per year. Crypto and blockchain analyst Nansen has determined that wallets that perform multiple related transactions are linked to Celsius. In addition, one of the portfolios found to have contributed to the UST’s fall is owned by Celsius Network.

Capital Three Arrows

The situation looks even worse for Singapore-based hedge fund Three Arrows Capital (3AC), which was founded last year and reportedly has nearly $10 billion in assets under management. The company is said to have positions in several of the largest crypto projects and companies in the market: Bitcoin, Ethereum, Solana, Axie Infinity and BlockFi.

After several days of silence, the fund’s CEO Kyle Davis said the company was considering selling its remaining assets, according to The Wall Street Journal. Like Celsius, 3AC reportedly engaged in discussions with legal advisors to find solutions to meet its obligations to creditors and investors.

3AC was one of the largest investors in the Luna Foundation Guard (LFG) and was reported to have invested about $200 million in Luna in February. An unidentified person revealed that 3AC acquired 10 million LUNCs for $560 million, worth less than $1,000 today.

The fall of 3AC, one of the largest borrowers and clients of cryptocurrency lenders, will hit the rest of the market and make the current downturn even more hellish. Arthur Hayes, former CEO of BitMEX, also highlighted the potential for this type of risk in a Twitter thread. Referring to the crypto derivatives market, Hayes noted that the largest open interest — the number of futures and options still to be settled — was then $20,000 for Bitcoin and $1,000 for Ethereum.

In the storm, MicroStrategy reassures its investors

Attention is also focused on MicroStrategy, the largest bitcoin holder among public companies. Early last month, Fong Li, CTO of MicroStrategy, said the company had nothing to worry about until bitcoin dropped to $21,000, triggering a margin call for the company. What was unthinkable a few weeks ago has become a reality today. This situation could force the company to dump tens of thousands of bitcoins in an already bear market.

However, MicroStrategy CEO Michael Saylor has confirmed his company’s interest in bitcoin on Twitter. Even if the price of bitcoin falls below $21,000, leading to a margin call on the Silvergate loan, Saylor said, MicroStrategy would have enough additional BTC as collateral. MicroStrategy currently owns 129,218 BTC.

Of course, this “crypto winter” is different from 2018, when stock markets also crashed like tech stocks, inflation skyrocketed, and a recession seemed imminent. Meanwhile, traders and investors are waiting to see where the bottom is. Some, however, see this correction as necessary as, in this bear market, quality projects will continue to develop and those that have benefited from rising prices will disappear from the sector.

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