Distributed Ledger: As crypto prices crash, some blockchain projects may be struggling to survive

Crypto in a snap

Bitcoin
BTCUSD,
+4.93%
lost 4.9% over the past seven days, trading at around $20,497 on Thursday, according to CoinDesk data. Ether
ETHUSD,
+11.04%
declined 9% over the seven-day stretch to around $1,174. Meme token Dogecoin
DOGEUSD,
+3.00%
retreated 12.5% while another dog-themed token, Shiba Inu
SHIBUSD,
3.62,
is trading 9.6% lower from seven days ago.

Crypto Metrics

Struggling protocols

After crypto prices crashed, some digital asset protocols could face increasing difficulty continuing operations as their treasuries shrank, according to Meltem Demirors, chief strategy officer at CoinShares.

“The issue with many protocols is their treasuries are mostly [denominated] in their own tokens,” Demirors said. “If you look at some of these protocols, their tokens are down 90% to 95%. Maybe two months ago, they had four years of runway, they now have four months of runway.”

It adds to the protocols’ pressure that smaller coins usually have limited liquidity. The protocols “couldn’t sell [them] even if they wanted to,” Demirors noted. 

“If we look at liquidity on these trade pairs, like the slippage bands on some of these assets, even in the top 100, is extremely low. Selling $100,000, or $200,000 worth of tokens will result in the price moving down 5% to 10%. Then this sort of creates this recursive effect,” according to Demirors. 

Meanwhile, it is still hard to measure the contagion from the bankruptcy of Three Arrows, Celsius and Voyage and to know how that would impact many blockchain projects, Demirors noted.

“There were a number of market makers, lenders and desks you could go to early this year, who would loan against your collateral, would market-make in low liquidity, have been pulling back their lending books and are no longer engaging in those activities. So generally, there just isn’t as much borrowing available,” Demirors said.

Tarun Gupta, chief executive at Coinshift, said that many crypto projects are not equipped well enough for market downturns in terms of their treasury management. Things worked well during the bull market, however, “as selloffs started and a lot of people at the same time wanted to take their positions back, there was no preparation,” Gupta said. 

“I would say the best solution going forward is definitely to have certain kind of auditing for these very large protocols, like what will happen to the investors when the worst case scenario comes and how that protocol is behaving. Nobody’s doing any kind of simulation. Nobody’s doing any kind of testing for that scenario,” noted Gupta. 

Celsius bankruptcy

Embattled crypto lender Celsius Networks on Wednesday filed for Chapter 11 bankruptcy protection, about a month after it paused all user withdrawals citing “extreme market conditions.”

In a statement, the company’s co-founder and Chief Executive Alex Mashinsky said the filing in U.S. Bankruptcy Court for the Southern District of New York “is the right decision for our community and company.” “I am confident that when we look back at the history of Celsius, we will see this as a defining moment, where acting with resolve and confidence served the community and strengthened the future of the company,” he said.

Celsius said it has $167 million in cash on hand, which will provide liquidity as it continues to operate during the restructuring process. MarketWatch’s Mike Murphy wrote more about it here.

In fact, as Celsius and another crypto company Voyager filed for bankruptcy, some customers have lost confidence in almost all centralized platforms. Read my story here.

Crypto companies, funds

Shares of Coinbase Global Inc.
COIN,
+0.60%
gained 2.2% to $54.25 on Thursday, and they were down 5.7% over the past five trading sessions. Michael Saylor’s MicroStrategy Inc.
MSTR,
+4.62%
went up 2.9% Thursday to $201.19, and it was down 8.4% over the past five days.

Mining company Riot Blockchain Inc.
RIOT,
+7.91%
shares rallied 6.1% to $5.23 Thursday, and were down 0.9% over the past five days. Shares of Marathon Digital Holdings Inc.
MARA,
+3.09%
rose 2.6% to $7.98, with a 12.9% gain over the past five days. Another miner, Ebang International Holdings Inc.
EBON,
+7.26%
shares increased 3% to $0.53 on Thursday, while they were down 4.8% over the past five days.

Overstock.com Inc.
OSTK,
-1.48%’s
shares edged up 0.3% to $28.87. The shares lost 9.9% over the five-session period.

Shares of Block Inc.
SQ,
-2.74%,
formerly known as Square, lost 1.8% to $62.99, contributing to a 8.3% loss for the week. Tesla Inc.
TSLA,
+0.54%
shares edged down 0.6% to $706.82, while they were down 3.6% over the past five sessions.

PayPal Holdings Inc.
PYPL,
-2.54%
declined 2% to $29.91, and it was down 6.8% over the five-session stretch. Nvidia Corp.
NVDA,
+1.37%
shares advanced 1.6% to $154.06, looking at a 2.8% loss over the past five trading days.

Advanced Micro Devices Inc.
AMD,
+1.39%
shares added 1.8% to $78.93 on Thursday, and were down 0.4% from five trading days ago.

Among crypto funds, ProShares Bitcoin Strategy ETF
BITO,
+5.12%
were up 5.3% to $12.76 Thursday, while its Short Bitcoin Strategy ETF
BITI,
-5.16%
tumbled 5.2% to $39.10. Valkyrie Bitcoin Strategy ETF
BTF,
+5.16%
increased 5.4% to $7.97, while VanEck Bitcoin Strategy ETF
XBTF,
+4.97%
jumped 5.3% to $20.12.

Grayscale Bitcoin Trust
GBTC,
+6.08%
rose 7% to $13.47.

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