By Marcus Sotiriou, Analyst at the UK-based digital asset broker Global Block
Global markets suffered a catastrophic blow yesterday, as Nasdaq was down 4.60% and the S&P 500 was down 3.88%. The crypto suffered the most, as Bitcoin fell over 20% to a low of $20,800. Since the crypto rally in November in response to the launch of the Bitcoin ETF Futures product, the crypto has been on a relentless downward trend with few signs of relief. Bitcoin has been very closely correlated with the Nasdaq this year and has actually performed better through May. When UST and LUNA collapsed last month, which had a combined value of around $100 billion, it set off a downward spiral that exacerbated the decline of cryptos against the Nasdaq.
The market rightly fears the potential impacts of Celsius’ insolvency, while still having billions in assets under management. The decline in their assets under management has been remarkable, dropping from $28 billion in November to around $3 billion today.
I think CelsiusDeFi’s liquidity issues raise serious concerns about high yields on many lending platforms, and crypto critics will feel more confident in their opinion of DeFi’s legitimacy. I agree that people should be careful with lending companies offering lucrative double-digit returns on assets like Bitcoin and Ethereum. People should consider the risks involved like smart contract exploits, lenders becoming insolvent, and whether the protocol has been stress tested. We are still in the initial phase of crypto, where many DeFi products are tested and selectivity will lead to many failures along the way.
We are seeing impacts across all centralized lenders, such as BlockFi is also facing problems. They announced in a blog post today that they were laying off 170-200 employees, or 20% of the lender’s total workforce.
This follows a series of established crypto companies decreasing the number of employees, due to the continued chaos occurring in this market downturn. Crypto.com CEO Kris Marszalek said on Friday the company was laying off about 260 employees.
However, unfortunate events with lenders like Celsius and other crypto companies will not stop savvy investors from investing directly in traditional cryptocurrencies. The intrinsic value of borderless, permissionless, blockchain-native assets will continue to thrive in the long term.