The collapse of Terra, 3AC, and insolvency crisis across crypto institutions has sent the market into severe bear tendencies over the course of Q2. Despite gradual recovery during July, the broader market remains tense and vulnerable right now. Bitcoin [BTC] is trading just below $22,900 while Ethereum [ETH] is mounting a massive rebound towards $1,600 after news of the Merge release date.
The second quarter of 2022 has been catastrophic for the crypto space. Bitcoin and Ethereum fell 56.3% and 67.4% respectively, recording one of the worst quarterly performances in their history. The collapse of the Terra ecosystem led to a domino effect across space which culminated in billions of losses. The “crypto winter” also consumed liquidity provider Three Arrows Capital and the insolvency of crypto institutions such as Celsius.
CryptoCompare analyzed the events of the second quarter and what they could mean for the crypto industry. Despite the internal tremors of the crypto industry, the macro landscape is labeled as “dire” in the report. The crypto market has been taken aback by these severe market conditions. The alarm bells of a looming recession are well-anticipated in the risk-asset space right now.
The dramatic fall of the crypto market led to a sharp decline in Total Value Locked (TVL) in DeFi. In total, the value has fallen by 65.7% in this quarter. The report claims that this bear market could lead to the development of innovations in the space much akin to the 2008 Financial Crisis. This, in turn, could be the catalyst for the next bull run in the industry.
“We expect the TVL in DeFi to continue to stay range bound as the price of crypto assets attempts to recover from the current drawdown,” stated the CryptoCompare report.
Regulations and cyber security failures have also been highlighted during this quarter. Janet Yelen, US Treasury Secretary highlighted the risks associated with the crypto space after the Terra explosion. Lawsuits have been filed against Terraform Labs and other related entities in the aftermath of the crisis. The ongoing security crisis has been well-documented in previous reports. Over $1 billion has been stolen in DeFi exploits over the quarter which continues to threaten protocols.
Given the nature of the macro-economic situation, the current price rebound is a mini-rally during the bear market. Market enthusiasts continue to roll out ambitious plans for crypto. But the industry will suffer severely in the growing tensions across the market. Where the industry goes from here still remains a trillion-dollar question for now.