Nansen, the blockchain analytics firm, has recently released a new report which provides an understanding of how the significant crypto trading entities like Three Arrows Capital and Celsius Network became extremely exposed in early June.
According to a Nansen research analyst and report author, Niklas Polk, who highlighted his views to Yahoo Finance, a lot of the selling pressure came following the breakdown of the Terra ecosystem. And that a bunch of these larger companies was way riskier players than anticipated. It suggests that if substantial players are all in the same position, it might not be particularly a great sign.
The report further drew a link to the Terra LUNA collapse. It demonstrated that various prominent crypto players seek their next profile strategy by adding leverage to a high-interest yielding derivative of the Ethereum (ETH), the second-largest crypto asset.
Here we talk about staked Ethereum (stETH); the price of ETH has plunged by 35% from late April to mid-May. And on May 11, around 98% of over 600,00 of ether-like assets were shifted from Terra and converted to stETH.
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Mid May, Celsius and Three Arrows Capital heaved a collective $800 Million worth of stETH from Curve, the DeFi exchange. The report signifies that the moves contributed to a shift in sentiment for stETH.
Coinmarketcap data highlights that from May 12 to June 18, investors sold $4 Billion worth of staked Ethereum (stETH) for Ether, given the bearish trends in the market that witnessed ETH slump by 31% within a week. And the outflows pushed the stETH price roughly 8% below Ether’s price.
Furthermore, the report notes that Celsius withdrew 50,000 stETH tokens in collateral as it utilized other crypto-assets like stablecoin to add collateral or repay the debt.
Polk highlighted that they could not see their other positions or Celsius has how much debt, but currently, they don’t see any stETH positions at risk. He added that the entity would be required to post more collateral on its positions if the stETH price has a drawdown of above 30%.
And that some of these people were super smart, but they held out either too long or kept buying more into a position they knew full well would be quite hard to get out of if things go worse.
Source: https://www.thecoinrepublic.com/2022/06/30/recent-report-discloses-primary-cause-of-the-recent-crypto-market-downturn/