Monday Market Minute | May 16, 2022

Crypto contagion deepens — Three Arrows Capital wobbles, Celsius teeters, and the leverage unwind accelerates

What Moved

The aftershocks of Terra/Luna's collapse continued to ripple through the crypto ecosystem. Three Arrows Capital, a Singapore-based crypto hedge fund managing billions, failed to meet margin calls and began liquidating positions. Celsius Network, a crypto lending platform with over $10 billion in deposits, saw withdrawal requests spike as depositors questioned the platform's solvency. Bitcoin remained below US$30,000, and the total crypto market cap had shed over $1 trillion from its November 2021 peak.

Why It Matters

The cascading failures revealed the interconnectedness and opacity of crypto's institutional plumbing — a network of leveraged funds, lending platforms, and yield protocols where counterparty risk was hidden in plain sight. For Canadian investors who had participated through exempt-market crypto funds or direct platform deposits, the lesson was stark: yield in crypto was not analogous to yield in traditional private credit. The risk-return profile was fundamentally different.

Signal to Watch

Celsius Network's ability to process withdrawals — any pause or restriction would confirm solvency fears and likely trigger a broader run on crypto lending platforms.

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