Why Bitcoin, Ethereum and Dogecoin fell today

What happened

Cryptocurrencies have another tough day on Tuesday as investors worry about the risk profile of digital assets at a time when one of the largest funds in the crypto industry is being wound up.

From 14.00 ET, Bitcoin (BTC -2.15%) was down 3.6% in the last 24 hours and fell by 5.6% from the highest to the lowest at that time. Ethereum (ETH -2.54%) was down 6.7% and had a maximum decline of 8.9%. Dogecoin (DOGE -3,12%) was down by 4.3% and had a peak decline of 6.5%.

So what

The Three Arrows Capital saga continues, and it gets weirder every day. The crypto hedge fund has been ordered to liquidate and has filed for bankruptcy in the United States, but even its lawyers do not know where the co-founders, Zhu Su and Kyle Davies, are right now.

Creditors and liquidators are looking for cooperation from the founders, who reportedly had as much as $ 10 billion in assets under management just a few months ago. But the collapse of TerraUSD pushed the company to a breaking point, and when cryptocurrencies such as Bitcoin and Ethereum fell, it could no longer survive.

What the market is worried about is that the collapse and liquidation of Three Arrows Capital could cause a domino effect of collapses across the industry, similar to what happened when Terra Luna imploded. The failure of these tokens suddenly revealed huge leveraged positions across the crypto market.

What now

The perceived balance between risk and reward continues to fluctuate in the crypto market, and right now traders and investors see more risk than they are willing to take. What we do not know is how big Three Arrows Capital’s positions are, or what the impact on the market will be if they are sold. For example, if the company had a large loan that was supported by Bitcoin, when the loan is repaid, Bitcoin will be returned, but then it will be sold by liquidators. This can lead to sales continuing.

Markets and traders do not like uncertainty, which helps to explain why the crypto market has been so volatile in recent weeks. Extreme risk has been identified, and if Three Arrows Capital hides even more risk, we can expect further sales and downward pressure going forward.

I do not think Tuesday’s token price fall is a reason to change your investment statement on any cryptocurrency, but I understand that there will probably be several major moves in the future. Courts can fight for months to relax Three Arrows Capital, and it was one of the largest individual assets in the crypto industry. With such a large settlement, a period of higher volatility is the only security for crypto.