First Mover Americas: It’s Ugly in Crypto With $200M of Margin Calls, Founders Selling Homes and Comparisons to 2008

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Good morning, and welcome to First Mover. I’m Lyllah Ledesma, here to take you through the latest in crypto markets, news and insights.

• Price Point: Even as BTC appears to stabilize, a flurry of new developments among the crypto firms wrecked by the market turmoil continues to unfold.

• Market Moves: How much more deleveraging in the crypto market needs to happen? JPMorgan’s Nikolaos Panigirtzoglou weighs in.

Price point

The fallout from this year's stunning plunge in cryptocurrency prices continues, even as bitcoin's price appeared to stabilize just below $20,000.

Bitcoin (BTC) was trading 1% up on the day, at around $19,100.

The world’s largest cryptocurrency by market capitalization is trading down 7% over the last seven days and ether (ETH) is also down by 12% over the last seven days.

Futures tracking BTC and ETH racked up nearly $200 million in liquidations as volatility on Thursday saw prices break above and back below resistance levels.

The number of active crypto users among Bank of America (BAC) customers slumped more than 50% to fewer than 500,000 between November and May, according to a new report from the bank.

Over in Central America, El Salvador’s President Nayib Bukele tweeted that the country bought 80 bitcoin at $19,000 each.

Meanwhile, there was a flurry of developments among crypto firms wrecked by the market turmoil, now looking to restructure their finances or searching for a lifeline from better-capitalized peers.

Celsius shareholder "BnkToTheFuture" proposed three recovery plans Thursday aimed at helping users affected by the insolvency of the crypto lender.

Crypto exchanges Blockchain.com and Deribit have said they are cooperating with ongoing investigations into Three Arrows Capital (3AC). Blockchain.com wrote in a report the hedge fund “defrauded the crypto industry.”

Su Zhu, the co-founder of 3AC, is looking to sell his house in Singapore, bought in December for $35 million.

Some analysts are comparing all of the pain to the 2008 financial crisis. Read down to Market Moves for more on that.

I also read an interesting, in-depth thread by TaschaLabs on how the next wave of crypto adoption will come from utility tokens of real-world companies. You can read it here.

Market moves

The wipeout of value in the latest downturn has been staggering for an industry that seemed to be firing on all cylinders as recently as last year. The current market capitalization of all cryptocurrencies is around $850 billion. In November 2021, the total market cap was nearly $3 trillion. This is a cumulative 70% drop so far since then.

The crypto market is now suffering from what some analysts are referring to as a credit crisis. This has exposed the fragile system of credit and leverage in crypto, increasingly compared to the 2008 Wall Street crash. It began with the collapse of Terra’s UST stablecoin – supposed to be worth $1, good as cash. It's now becoming clear just how many centralized crypto lenders were offering unsustainable returns.

Nikolaos Panigirtzoglou, cross-asset analyst at JPMorgan, wrote in a LinkedIn post Friday that it's hard to tell how much more deleveraging still needs to happen in the market. Referring to the bank’s net leverage metric, which is based on futures, he wrote that it suggests deleveraging is already well advanced.

“Similar to the credit market deleveraging seen after the Lehman crisis [when the brokerage firm failed in 2008], the bottom in crypto markets is likely to take place before the failure rate among crypto companies peaks,” wrote Panigirtzoglou.

He said there are two additional reasons to believe the current deleveraging cycle would not very protracted: “1) the fact that crypto entities with the stronger balance sheets are currently stepping in to help contain contagion and 2) VC funding an important source of capital for the crypto ecosystem continued at a healthy pace in May and June.”

Latest headlines

• Bank of America Customers’ Crypto Activity Slowed as Market Slid Almost 70% of the U.S. population has not invested in or is not interested in investing in cryptocurrencies, the bank said.

• Celsius Shareholder BnkToTheFuture Proposes Bitcoin Investments, Restructuring in Rescue Bid Community investing protocol BnkToTheFuture put forth three proposals on Thursday night in a bid to save Celsius from going under.

• Three Arrows Capital's Su Zhu Looks to Sell $35M Singapore House Zhu and his wife purchased the property late last year for S$48.8 million ($35 million) and now they are selling it in what analysts call a slowing market.

• Singapore Central Bank Censures 3AC for Misleading and False Disclosures Three Arrows Capital also exceeded the threshold of assets it could manage in Singapore, according to the central bank.

• Bitcoin, Ether Futures Rack up Nearly $200M in Liquidations on Short Squeeze Price volatility arose as signs of looming recessions were renewed among investors, one analyst said.

• Blockchain.com, Deribit Among Creditors That Pushed for 3AC Liquidation: Report Blockchain.com has also said it is cooperating with ongoing investigations into the hedge fund, which "defrauded the crypto industry."

• El Salvador Purchases 80 Additional Bitcoin at $19K, President Bukele Says The last purchase by the Central American country had been in May.

• VanEck Files New Application for Spot Bitcoin ETF The application comes about eight months after the SEC rejected the investment firm’s last application.

• Do Rate Hikes Matter? Bitcoin Traders Learn How Fed Moves Markets in Twitter Era The Federal Reserve has become a big believer in forward guidance over the years, starting with Chair Ben Bernanke. But the central bank under Jerome Powell has taken transparency to a new level.

Today’s newsletter was edited by Parikshit Mishra and produced by Stephen Alpher.