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News Overview 7/19: Ethereum, Celsius, 3AC, Ripple, USDC

Ethereum has been lifting the market for the past week. The reason is the new date for The Merge update. Lending platform Celsius filed for bankruptcy. Hedge fund 3AC’s billion-dollar debts have also come to light. Ripple founder Jed McCaleb has finally sold all his XRP tokens. Circle disclosed its USDC reserves.

A new date set for The Merge

The crypto market has been in a strong tailwind since late last week. This trend has been led by Ethereum, which has gone up by as much as 40% in seven days. That is due to the new date for The Merge update.

The Merge is the biggest update in Ethereum’s history. It is an important step towards the so-called 2.0 version. With The Merge, Ethereum moves from the Proof of Work consensus to the Proof of Stake consensus. This means the end of mining.

The date for The Merge has been a talking point throughout the year. The market has been excited in recent days, with Ethereum’s lead developer Tim Beiko suggesting a date of September 19 in a discussion last Thursday.

The date is not set in stone, but it was a strong signal to the market: the Merge is coming soon. Last week also saw the completion of shadow fork no. 9. This is part of smaller-scale test updates that have been running over the spring and summer.

The last major test will take place in early August. That’s when The Merge update will run on the Goerli test network. If all goes smoothly, the final date for The Merge will likely be confirmed at that point.

All updates to the test networks and shadow forks have gone smoothly without any major challenges. Investors are not that interested in the exact date but more about the fact that The Merge will actually happen in the coming months.

Celsius filed for bankruptcy

The Celsius lending service has been one of the hottest topics of the summer. The company, which at its peak managed more than 20 billion in assets and 2.7 million customers, unexpectedly closed its doors at the beginning of June. We took a closer look at the reasons for Celsius’ collapse in our news review 29th of June.

There have been many rumors about Celsius assets. Now the facts are finally on the table, as the company officially filed for bankruptcy last week.

It is worth noting that there are different bankruptcy procedures in the US. Celsius’ Chapter 11 filing will allow the company to continue operating while its assets are reorganized. Another way would be to liquidate all assets, meaning to sell billions of dollars worth of cryptocurrencies.

According to publicly available information, Celsius has a $1.2 billion hole in its balance sheet.

Total assets $4.3 billion, Total liabilities $5.5 billion.

There has been much debate about the above figures, and many analysts believe there is a lot of hot air on the assets side. For example, the 600 million dollar valuation for the CEL tokens is certainly too high.

As much as $720 million is tied up in the Celsius mining business. According to bankruptcy lawyers, the bitcoin mining farm can produce 14.2 BTC/day but could mine over 10,000 bitcoins in the calendar year 2022. At the current price, this would mean more than $200 million. Can Bitcoin mining help the creditors?

Celsius has significant wealth left, but how much can be returned to customers? And how long can this process take?

A week ago, we reported about the bankruptcy of Mt. Gox. Customers of the exchange are still waiting for their share of the bankruptcy estate after eight years. Celsius customers could face a similar fate. The process is now at least underway.

Hedge fund 3AC has over three billion in debt

In addition to Celsus, another large-cap company has been in the headlines all summer; hedge fund Three Arrows Capital a.k.a 3AC. At its peak, 3AC managed over 10 billion in assets. The company collapsed just days after Celsius. We also took a closer look at the background of 3AC in our news review 29th of June.

Like Celsius, this infamous company has also filed for bankruptcy. The process is Chapter 15, which helps non-US companies protect their assets. This means that 3AC assets are sold and distributed to creditors.

The Twitter thread below summarizes the main points of a 1000+ page document on the subject.

If the 1.2 billion crater in the Celsius balance sheet looks bad, 3AC is in an order of magnitude more trouble. It has borrowed money from over 20 large corporations ranging from tens of millions of dollars to several billion per client.

3AC will be stripped of as much as $3.5 billion, of which $2.3 billion will go to a company called Genesis. It is part of the US-listed Digital Currency Group, which also owns the Grayscale fund. In addition, the loan was undercollateralized.

The above document gives a very bad picture of the 3AC owners and their behavior in early June. In addition to trying to borrow more money to cover other debts, 3AC management startd to ghost creditors at a critical moment. There is still a lot to be cleared in this saga.

The hedge fund effectively collapsed as a result of the crash of Terra Luna and UST. 3AC had invested heavily in the Luna token. The market downturn, which was triggered by Terra’s collapse, destroyed the collateral on many loans.

The collapse of 3AC has put its biggest creditors in difficulty. The best-known example is Voyager Exchange, which has $650 million in claims on 3AC. Last week, a $270 million loan from Blockchain.com was also announced. The aforementioned Genesis and Digital Currency Group are not in trouble, according to company representatives. At least not yet.

Because 3AC had such a good reputation, the company was also able to obtain undercollateralized loans or even without collateral at all. 3AC also owes around $75 million to Celsius.

It is currently very unclear what assets 3AC has left. It may well be that not many cents on the dollar will be returned to creditors.

Jed McCaleb’s XRP sales are finally over

Yesterday, the long process related to Ripple and its XRP token was completed. Company founder Jed McCaleb stopped selling XRP! What is this all about?

Those who follow the industry know Jed McCaleb as the founder of Stellar Lumens. McCaleb was also one of the founding partners of Ripple. He got into disagreements with Ripple’s management in 2013, which led to McCaleb’s exit in 2014.

Jed McCaleb held a huge XRP position. He initially threatened to dump it all once on the market, but eventually came to an agreement with Ripple. McCaleb has been selling his XRP holdings in small batches to this day.

This is no small amount of coins, as McCaleb has dumped nine billion XRP tokens on the market! That’s 18.6% of all coins in circulation. McCaleb’s last sale yesterday was 1.1 million XRP worth around $395,000.

This will have a positive impact on the price of XRP in the long run since a large seller is gone. However, there is unlikely to be any rapid recovery as the bear market is still ongoing.

In addition, Ripple, which launched XRP, is still in court with the US Securities and Exchange Commission (SEC). The process started already in early 2021, some 1.5 years ago. The SEC sued Ripple claiming that XRP should have a security classification.

If the SEC’s view is correct, XRP couldn’t be traded in US crypto exchanges. Trading securities (stocks, bonds, etc.) requires a completely different set of licenses. It is difficult to say anything about the international implications of a possible ruling.

Last week, Ripple scored a significant victory in an SEC lawsuit related to the so-called Hinman case. It has also taken other smaller and larger victories during the trial. However, no final breakthrough has been seen. The trial is currently expected to end in 2022.

Circle disclosed USDC reserves

Stablecoins have been the hot potato this summer. The collapse of Terra’s UST stablecoin in May was a shock for both the investors and regulators. It has also led many to question the reliability of existing stablecoins.

The USD Coin (USDC), launched by the US-based Circle, has been growing rapidly in recent years. The market cap of USDC rose from $4 billion to $42 billion between January 2021 and January 2022. This year, the market cap of USDC has already reached $55 billion.

The market-leading stablecoin Tether (USDT) has lost around $15 billion in market cap over the summer. The runaway of investors from Tether began after the collapse of Terra. The downward slide has continued steadily each week, but Tether is still the largest stablecoin by market cap.

So far, Tether has not had any problems returning dollars to its customers in exchange for USDT tokens.

We picked up USDC in the news because Circle disclosed the reserves for its stablecoin last week.

According to the report, USD Coin is backed by $13.58 billion in cash and $42.12 billion in three-month US Treasury bills. These are generally considered to be the safest investments in the market.

At that time, there were 55.57 billion USD Coins in circulation backed by 55.7 billion dollars in reserves. However, it should be noted that this report is not the same as an official audit. This is something that investors have also asked from Tether for years.

Stablecoins are also a hot topic due to the rise of the US dollar. Investors have lost more than 20% of their purchasing power in one year by holding fiat currencies in euros versus dollar-linked stablecoins. Some smaller fiat currencies have lost even more. We wrote more about this in last week’s news review.