Is the 'Crypto Winter' Over?

Prior to its collapse, in early May 2022, Luna was trading above $80 per token and had a market capitalization of approximately $14 billion. Luna was the backbone of UST, which was designed as an algorithmic "stablecoin" that was intended to be pegged one-to-one with the U.S. dollar. However, on or about May 6, 2022, UST experienced a significant "de-pegging" event (i.e., it decreased in value relative to the U.S. dollar to which it was pegged). UST's de-pegging was brought on by "sudden and heavy selling of UST by a small number of market participants [that] caused UST to de-peg from the U.S. dollar and its price to decline steeply." These market participants sold off approximately $2 billion of UST in a matter of minutes, which caused UST's price to drop down to $0.91. At the same time, within the span of approximately one week Luna's price fell from $82.55 to $0.000001 (one hundred-thousandth of a cent) per token, eliminating somewhere between $18 billion — $50 billion of Luna's and UST's market capitalization. UST became the antithesis of a "stable" coin with its value plummeting to $0.01 by the beginning of June 2022. The collapse of Terra's token set off panic across cryptocurrency markets creating a "run on the bank" resulting in over $450 billion in cryptocurrency asset value being destroyed between May and June. As panic ensued and customers sought to withdraw their cryptocurrency holdings across various exchanges, several cryptocurrency companies experienced severe liquidity crises — a domino effect that spread throughout the cryptocurrency industry.

Shortly after the collapse of Terra's UST and Luna tokens, on June 12, 2022, Celsius Network LLC (Celsius), a cryptocurrency lender with over $11 billion of assets under management, announced that it was pausing all account withdrawals and transfers due to extreme market conditions. On June 27, 2022, the digital asset hedge fund Three Arrows Capital (3AC), which had heavy exposure to UST, defaulted on loan payments to cryptocurrency lenders Celsius and Voyager and, shortly thereafter, commenced liquidation proceedings.