Following the over-the-counter (OTC) firm’s Twitter thread on June 14, Cumberland explained on July 5 that “rangebound price action belies a volatile picture below the surface,” while crypto markets consolidated during the past week. Cumberland stressed there’s a growing number of crypto companies feeling financial burdens, and “uncertainty” tied to stressed entities is “hanging over the market like a cloud.”
OTC Firm Cumberland Says That Markets will Return to a Healthful State After Distressed Assets are Transferred from the Insolvent To the Solvent
The cryptocurrency OTC trading platform Cumberland (a subsidiary of DRW) explained in mid-June how the company saw significant volumes on June 13. The company actually recorded an earlier year-to date high of May 13 and volume on June 13, which was 30% higher than the high in mid-May. In recent times, Cumberland wrote about the Securities and Exchange Commission (SEC) rejecting Grayscale’s spot exchange-traded fund (ETF) bid. Cumberland also spoke about the Federal Reserve, Fed chair Jerome Powell, inflation, a recession, and today’s macroeconomic backdrop.
Chris Zuehlke was the global head for Cumberland at DRW and appeared on CNBC. detailedHe believes that the market is maturing and this downturn is an indication of it. Cumberland arrived a few more days later. published a threadThe article addresses the financial problems that are currently affecting cryptocurrency companies. Cumberland noted that while markets are quiet, things could get volatile again due to burdened crypto companies “halting withdrawals, reducing headcount, and hiring restructuring firms.” Cumberland added:
These companies’ assets will eventually need to be sold to offset some of their liabilities. The market is hung over by uncertainty about the timing and size of the asset sales.
Cumberland: ‘Excessively Levered Finance Companies Have Been Punished in Bear Markets for Hundreds of Years’
Numerous well-known crypto and blockchain firms have let thousands of employees go in 2022. Coinbase, Gemini. Etoro. Robinhood. Bitso. Crypto.com. 2TM. and Buenbit are some of the firms that have cut staff. On June 12, the withdrawals of crypto lender Celsius were halted. Voyager also paused withdrawals from this platform. Vauld has already stopped withdrawals and several companies may be looking into restructuring. Three Arrows Capital, the crypto hedge fund that is worth billions of USD (3AC), has filed Chapter 15 bankruptcy. This follows multiple sources revealing that 3AC was subject to massive liquidations.
“This is hardly a novel phenomenon,” Cumberland said. “Excessively levered finance companies have been punished in bear markets for hundreds of years. While this current cycle raises eyebrows because the assets are digital, the underlying economics are no different than the examples in textbooks.”
Cumberland’s Twitter thread explains that behind the scenes and off-chain, the financial hardships are not very transparent. The OTC firm’s statement is similar to the commentary FTX CEO Sam Bankman-Fried made on June 19, when he said issues like 3AC’s meltdown “couldn’t have happened with an on-chain protocol that was transparent.” Cumberland remarked that “as long as large and opaque off-chain liquidation flows are looming in the backdrop, participants will be hesitant to commit capital. This reduces liquidity and increases volatility.” Cumberland concluded by stating:
On the other hand, liquidation levels on-chain are transparent and easily observable. This is a good thing. [decentralized finance] is fulfilling its promise – forced asset transfers are algorithmic, predictable, orderly, and visible to all.
What do you think about Cumberland’s recent Twitter thread that explains uncertainty hangs over the crypto industry like a cloud? Comment below to let us know your thoughts on this topic.
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