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Will Canny
Will Canny is CoinDesk's finance reporter.
The combination of macro headwinds and over-leveraged yield strategies has resulted in the forced selling of cryptocurrencies in the last few days, wiping more than $200 billion in value from the digital asset market, FSInsight said in a report on Tuesday.
- The “takedown of terraUSD (UST) and Celsius is long-term constructive for the industry,” wrote the head of digital asset strategy, Sean Farrell.
- “Such public displays of ignorant capital destruction are often overlooked in the traditional finance industry (or take a very long time to unwind),” the note said, fortunately crypto markets have the benefit of “iterating and improving at a more rapid pace.
- ”In regard to Celsius, if yield generation strategies are too good to be true, that is because they probably are, FSInsight said, adding that the crypto lender was “notorious for promoting ‘risk-free’ yields on client assets,” which required huge amounts of leverage coupled with risky and illiquid staking mechanisms.
- The difference between owned and custodied assets only becomes evident during times of market distress, the report said, and many Celsius users who thought they owned their assets found themselves unable to withdraw during this period of increased market volatility, it added.
- “In a tight environment, leverage becomes a dangerous double-edged sword that can strike when you least expect,” the note added.
- FSInsight says it is still constructive on crypto prices in the second half of the year, and says this is the time for medium to long-term investors to consider allocating to bitcoin (BTC) more aggressively.
Read more: Crypto Market Cap Dips Below $1T as Celsius Pauses Withdrawals
