Why Might The Recent Crypto Collapses Be Good in the Long?Term?

We had three major events in the crypto sector recently:

• UST depegged, and LUNA crashed
• Celsius Network collapsed
• Three Arrows Capital (3AC) is rumored to be insolvent

LUNA’s stablecoin, UST, has lost its peg to the dollar and didn’t recover after this, which made the price of the token that recently hit an ATH of ~119 USD go to zero.

Celsius, a crypto lender that promised APYs up to 17%, blocked all withdrawals. They basically took the customers’ money and invested in DeFi protocols to get higher yields — in a bull market, that worked pretty well. Now the scenario has changed, people wanted to withdraw, but the company had no liquidity.

3AC, a billion-dollar crypto hedge fund, is one of the largest crypto borrowers globally. When you borrow crypto, you must put other assets as collateral, such as BTC and ETH. With the recent market plunges, some rumors that unforeseen forced liquidations occurred, and there is a risk of the most respected crypto hedge fund globally being insolvent.

A forced liquidation is when the trader does not have more margin to sustain the leverage if the prices go down.

How is it good for the crypto sector?

Unbacked crypto-assets represent a risk to financial stability, and the irresponsive leverage and lending that those companies were operating might speed up the regulation process.

Back in 2008, after the financial crash happened, regulators placed limits on leveraged exposure and developed strict risk management frameworks. The crypto sector grew too fast since its genesis in 2009, while the need for regulations started to surge only a few years ago — and this bureaucratic process takes time to conclude.

What we see now is a pure lack of regulation of this industry. It’s more than clear that crypto companies such as exchanges, funds, and lending platforms should undergo risk management procedures, stress testing, and other measures and restrictions that the same companies from traditional finance face.

It is expected that other companies from the same industry, especially the competitors of the ones mentioned above, take extra caution, lower the leverages and get more attentive to the risks they previously didn’t take much into consideration. It is also expected that institutional investors push a certain level of regulation into the market to avoid the million and billion-dollar losses that their pairs went into. Regulators were slowly taking place, but now they have all the reasons to accelerate this process.

Although these events are shocking, especially to recent investors, if you still maintain your long-term vision of crypto, this is an excellent window for buying opportunities. Even if there might be other huge crypto companies on the way to collapse (and likely drive prices down to new bottoms), our future expectations on crypto still remain the same.

Joe Robert is currently the Chief Executive Officer of Robert Ventures, with over 20 years of asset management experience. Since he started Joe has created predictable double-digit returns for investors & Partners. Joe has invested in seed rounds with equity and tokens, along with a portfolio of Bitcoin, Ethereum, and other top cryptocurrencies.

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