Is Bitcoin diving or is it actually a strengthening moment in the crypto market?

Many are in a hurry to eulogize the digital currencies, but there are those who believe that it is a combination of external and internal shocks, which shook the digital currency market and brought it to a low reminiscent of the crisis of 2018. The good news:

Eli Mizrah, CEO of Silver Castel

20/06/2022

Monday, 20 June 2022, 09:53 Updated: 10:35

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We are looking at the current point in time, the current crisis in the crypto market, which is currently true and strengthening for the industry, even though it is difficult now and is accompanied by tens of percent declines in digital currency prices.

Before we explain why we are in a strengthening time today, we need to understand what happened.

There was a combination of several factors that weighed on digital currencies: First, world markets have been declining since the beginning of the year and as we already know there is a growing correlation between them and the crypto market.

Although the correlation with the financial markets is now reflected in price declines, on the whole it is a positive and important trend, which indicates the establishment of the crypto field.

We are also pleased to see that it has not backed down: more and more institutional bodies have continued to enter crypto in recent months.

However, the crypto market is also affected by internal factors.

For example, the collapse and collapse of some of the models that led to it.

In the last two years, the field of DeFi (decentralized financing) has grown at an incredible rate, bringing a great deal of innovation and becoming a very attractive channel for small and large investors, who have enjoyed high interest rates and returns on their money.

The field has grown by the hundreds of billions of dollars that have gone into it in the last year and a half and has brought in real news.

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Bitcoin (illustration).

Is this a currency in danger of extinction or only while a crisis has emerged from it? (Photo: ShutterStock)

From Celsius to Fahrenheit

However, most investors did not know how to quantify the volatility and risks they were exposed to upon entering DeFi.

For example, the difficulty that will arise in getting the money out of position in moments of crisis.

Most investors really did not understand this, including some of the biggest players in the crypto market.

And here we come to the collapse of Luna / Terra and the current crisis in the crypto lending company Celsius.

Tara was a stable digital currency (Stablecoin), which was supposed to be pegged to the dollar.

Unfortunately, no mechanism has been built in it that will know how to properly deal with very strong demand and drainage scenarios.

In fact, what was expected to happen in Tara - happened.

There was no big surprise here.

In the last crisis, this mechanism simply lost effectiveness at some point and failed to stay pegged to the dollar.

That's how billions of dollars were spent on Terra / Luna.

At that low point it seemed that one could only ascend from here, but then came the crisis of Celsius.

The company, a crypto-lending platform that has branded itself as the bank of the future, has suddenly announced that it is freezing all withdrawals from its accounts due to "extreme market conditions".

They lured investors with high DEFI interest rates and had a "book" of deposits from very many small retail investors.

In the moment of truth, Celsius has failed in one of the most basic aspects of banking: asset management and liabilities.

Eli Mizrah, CEO of Silver Castel, an investment house in digital currencies (Photo: Eli Cohen)

So what's next?

Every 3-4 years there are big declines in the crypto market.

In 2018 the market lost about 70% of its value in the disillusionment that followed the madness of crypto issues.

There was a lot of money in the market then, not smart and not careful.

However, the collapse in 2018 brought into the crypto market the regulators, who from mid-2019 carry out a series of the domain, set rules and regulations, set precedents, pursue and prosecute anyone who commits fraud.

And that's great.

In many ways, the DEFI market is today in a similar situation: this time too there is almost no regulation in the market that has grown at an enormous rate, with the money of many investors who almost all did not understand the models and / or the risks.

Again, it is safe to assume that regulators will come in and clean up a lot of the noise.

We will stay with blockchain and crypto players who will continue to build, push and bring innovation.

Those who go through the crisis will be exposed to a great many attractive opportunities.

And the market?

He will recover.

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