Major Crypto Market Maker Sees More Short-Term Volatility, Here's Why
Cumberland, a major liquidity provider for institutional crypto traders, says market volatility will continue as more centralized companies get liquidated.
The trading desk said in a Twitter thread that the crypto assets of these firms will eventually be liquidated- a move that is bound to cause more price volatility.
This process will be further complicated by most of these liquidations occurring off-chain- leaving most traders in the dark over the transfer of assets.
The trading desk’s comments come as several crypto firms– including Celsius, Voyager, and Vauld- suspended withdrawals citing an extreme liquidity crunch. Celsius and Voyager are now headed for restructuring, which could see their assets liquidated.
Centralized firms liquidated off-chain
Cumberland- which has facilitated crypto transactions for several major clients, including Goldman Sachs- said that given the lack of transparency over such liquidations will keep traders from participating in the market.
The current rangebound price action in the market belied a much more volatile picture under the surface, according to the trading desk.
It also noted that the phenomenon is not relegated to crypto- companies with excessive leverage have always been burnt by bear markets.
The speed at which markets return to a healthy state will be determined by the rate at which distressed assets are transferred from the balance sheets of the insolvent onto those of the solvent.
But the trading desk also noted that DeFi platforms have performed as intended through the crash, providing order and transparency.
Crypto markets plummet in value
Unfavorable macroeconomic conditions has seen crypto markets plummet in value this year. Majors Bitcoin and Ethereum are trading down 58% and 69%, respectively, for the year.
After suffering sharp losses, the market is now holding around its lowest level since mid-2020. But there are few factors that could facilitate a recovery.
In addition to growing fears of a U.S. recession, a cascade of potential bankruptcies in crypto have also dented sentiment in recent months.
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