[Bitcoin Now] Asset Management Scale Plummets... Direct Hits from Bank Run and Default

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Lee Jung-yoon] As concerns over an economic recession have led to a downturn in the cryptocurrency market, the assets under management (AUM) of digital asset investment products are also showing a declining trend.

According to cryptocurrency data analysis firm CryptoCompare, from the 1st to the 23rd of last month, the AUM of digital asset investment products dropped sharply by 36.8% compared to the previous month, totaling $21.6 billion (approximately 28.1124 trillion KRW).

The AUM of Bitcoin-related investment products decreased by 33.7% to $15.9 billion. However, Bitcoin's share of the total AUM actually increased from 70.1% last month to 73.6%. This was due to a reduction in the scale of coins including Ethereum, the leading altcoin. The AUM of Ethereum-related investment products fell by 46.7% to $4.54 billion (approximately 5.8521 trillion KRW).

The AUM of digital asset investment products has declined for three consecutive months since April. Due to uncertainties such as concerns over the U.S. Federal Reserve's (Fed) interest rate hikes, the AUM recorded from April 1 to 27 decreased by 1.34% compared to the previous month. The amount recorded from May 1 to 26 fell by 28.6%. The price drop of TerraUSD (UST), a stablecoin pegged to the dollar, caused the price of its sister coin Luna Classic to plummet, triggering a ripple effect. The largest decline occurred last month, and CryptoCompare explained that the Fed's 'giant step' of raising the benchmark interest rate by 0.75 percentage points at once on the 15th of last month (local time) influenced this.

Additionally, CryptoCompare reported that the crisis among cryptocurrency lending firms has prevented recovery from the Luna Classic incident's aftermath. Last month, Celsius, a cryptocurrency-backed lending company, announced a temporary suspension of customer asset withdrawals due to a bank run. Hong Kong-based Babel Finance also halted deposit withdrawals. At the time, Babel Finance stated, "Recently, significant volatility has appeared in the cryptocurrency market, and some institutions are experiencing a chain of risk events," adding, "Due to these circumstances, we are under abnormal liquidity pressure."

The default concerns of cryptocurrency investment hedge fund Three Arrows Capital (3AC) also had an impact. 3AC reportedly failed to repay $350 million (approximately 451.6 billion KRW) worth of stablecoin USDC and 15,250 Bitcoins to digital asset brokerage Voyager Digital. It is also known to have invested in Luna Classic. Ultimately, 3AC was declared bankrupt by a court in the British Virgin Islands on the 27th of last month (local time).

Meanwhile, according to the global cryptocurrency market tracking site CoinMarketCap, as of 11:01 a.m. on the day, Bitcoin's price was recorded at $20,398 (approximately 26.41 million KRW), up 1.90% from the previous day. The price is rising as bargain buying flows in.

However, Bitcoin's price briefly dropped to the $18,700 range in the morning, influenced by the U.S. Securities and Exchange Commission's (SEC) rejection on the 29th of last month of Grayscale's application for a spot Bitcoin exchange-traded fund (ETF). The SEC raised concerns about market manipulation and other issues, and Grayscale reportedly failed to respond adequately. So far, the SEC has only approved Bitcoin futures ETFs. The market believes this is because it is difficult to manage price manipulation since Bitcoin is traded at different prices across numerous cryptocurrency exchanges.