Many have speculated that the fallout from the Terra blockchain, its native token, and its algorithmic stablecoin are the primary reason for the massive price decline and participation seen in the cryptocurrency space during the second trimester. However, we finally have proof of this as research firm Arcane Research revealed that 236,237 BTC were sold by known institutional investors in the 10e of May 2022, just after the Terra Blockchain troubles started.
The 236,237 BTC number is derived from massive institutional blowouts and other known large selloffs seen during the market crisis over the past two months. The number does not take into account other natural capitulation and hedging activity that typically occurs during crypto bear markets. Using today’s price, this is worth around $5.34 billion in dollars and it signals the deleveraging of institutional investors from the cryptocurrency space as prices, valuations and participation continue to rise. fall to levels not seen since the COVID-19 pandemic.
This data shows how much institutional investors have lost faith in the crypto market. This ultimately led Bitcoin, the primary crypto asset, to fall below the $20,000 trading zone, a price not traded since December 2020. As the market sold off, the market capitalization of the entire space fell below $1 trillion, indicating that the market lost its trillion-dollar status as the overall market fell below legacy organizations like Apple, Saudi Aramco, Microsoft, Alphabet and Amazon.
The sale of LFG in order to defend the Peg
- The Luna Foundation Guard (LFG) led the selloff seen by institutional investors in the market by selling just over 80,000 BTC. Recall that the LFG accumulated these Bitcoin because it wanted its stablecoin to be backed by Bitcoin. He pledged to buy $10 billion worth of Bitcoin of which $3 billion will be purchased in the short term, which he accomplished.
- In an effort to defend its lost peg, the LFG sold all of its 80,393 BTC. However, the algorithmic stablecoin, which is now dubbed USTC, in which C stands for “Classic”, lost the battle to maintain its 1:1 peg to the US dollar, as the project was scrapped.
Tesla and its need for liquidity
- Tesla, the electric vehicle maker, led by the world’s richest man, Elon Musk, comes in second. Tesla announced on its second quarter earnings call, via Elon, that it had sold 75% of its Bitcoin holdings, “to boost his cash position given uncertainty surrounding Covid lockdowns in China.”
- Tesla, according to the Arcane Research report, sold 29,060 BTC at an average price of $32,209, bringing the total transaction in monetary terms to around $936 million. As of the second quarter of 2022, Tesla now holds 9,686 BTC, which at the current price is worth $218 million.
- The report stated: “This estimate is based on VWAP’s previous estimates from their initial purchase of BTC (average price of $34,841) and selling 10% of their BTC to “test liquidity” in Q1 2021..” It further reads, “Assuming the 10% of BTC was sold in Q1 was sold at $50,000, Tesla’s new breakeven price for BTC was around $33,325, meaning Tesla sold at a small loss.”
- Other companies that sold include Purpose BTC ETF which sold 24,510 BTC, GBTC Holdings linked to 3AC which sold 22,054 BTC, Celsius which sold 21,962 WBTC, WBTC Redemptions which sold 21,009 and so on. .
Mining isn’t as profitable as it used to be
- The report explained that due to falling prices of cryptocurrency assets, it has forced Bitcoin miners, who are people with computing power who can solve the computational problem needed to validate a block of bitcoin transactions, to start selling their position. The report estimated that public BTC miners sold 4,456 BTC in May and surged in June by selling 14,600 BTC in June.
- According to the chart, the amount sold by public miners reveals that they sold over 100% of what they produced in May and almost 400% in June, a massive increase from the usual 25-40%. which were the threshold. in the first four months of the year. This massive jump shows that the deteriorating profitability of mining, caused by the price drops seen, has forced public miners to start liquidating their bitcoin holdings.
- Bitcoin miners are the only natural net sellers of Bitcoin. They receive 900 BTC daily and seek to “hodl” as much as possible. Ironically, their “hodl” ambitions cause them to sell their precious bitcoins during bear markets since that’s when the market forces them to sell.
- In the first four months of 2022, state-owned mining companies sold an average of 30% of their bitcoin production. The drop in mining profitability caused by the fall in the price of Bitcoin forced these miners to increase their rate of sale to almost 400% of their production in June.
- Although public miners only make up about 20% of Bitcoin’s hashrate, studying their behavior can give some idea of what private miners are doing. Public miners are likely to sell more of their mined bitcoin now, as they could retain more of their production during the bull market by tapping into financial markets, which was more difficult for private miners.
The report explained that the entry into June, which saw the release of US CPI data, caught many off guard and sent prices south, bankrupting several whales already under pressure. after Luna’s collapse. June 12e Specifically, Celsius shut down withdrawals and rumors about 3AC collapsing.
Leaked court documents revealed that 3AC owes the lenders 18,193 BTC and a GBTC equivalent of 22,054 BTC. Following the collapse, 3AC’s creditors hedged and reduced their exposure by attempting to repair balance sheet holes while liquidating 3AC, causing a real fire sell.
The news continues after this announcement
The last 2 months have been an obvious sell-out. Most of the sales of the 236,237 BTC mentioned above were forced sales, and that’s probably worse than what this research covers with the capitulation of underwater retailers and institutions. The report concluded by stating: “Chapter 11, 3AC court documents, stETH/ETH price normalization, and the relief rally seen in recent weeks tell me the contagion is resolving; less uncertain times ahead.”