Bitcoin (BTC) posts worst quarter in more than a decade: 5 reasons why

During the quarter, the U.S. Federal Reserve carried out two aggressive interest rate hikes to battle rampant inflation. That has sparked fears of a recession in the U.S. and other countries.

A stablecoin is a type of cryptocurrency usually pegged to a real-world asset. TerraUSD, or UST, was supposed to be pegged one-to-one with the U.S. dollar. Some stablecoins are backed by real assets such as fiat currency or government bonds. But UST was governed by an algorithm and a complex system of burning and minting coins.

Crypto lender Celsius paused withdrawals for customers in June.

The company offered users yields of more than 18% if they deposit cryptocurrency with Celsius. It then lent that money to players in the crypto market who were willing to pay a high interest rate to borrow the money.

But the price slump put that model to the test. Celsius cited “extreme market conditions” as the reason for pausing withdrawals.

On Thursday, Celsius said in a blog post that it was taking “important steps to preserve and protect assets and explore options available to us.”

These options include “pursuing strategic transactions as well as a restructuring of our liabilities, among other avenues.”

The issues with Celsius exposed the weakness in many of the lending models used in the cryptocurrency industry that offered users high yields.

The Financial Times reported last month that U.S.-based crypto lenders BlockFi and Genesis liquidated some of 3AC’s positions, citing people familiar with the matter. 3AC had borrowed from BlockFi but was unable to meet the margin call.

A margin call is a situation in which an investor has to commit more funds to avoid losses on a trade made with borrowed money.

Then 3AC defaulted on a loan worth more than $660 million from Voyager Digital.

As a result, Three Arrows Capital fell into liquidation, a person with knowledge of the matter told CNBC this week.

The 3AC situation has exposed the highly leveraged nature of trading in the industry in recent times.

Cryptocurrency exchange CoinFlex halted customer withdrawals last month, citing “extreme market conditions” and a customers account that went into negative equity.

CoinFlex claimed that the customer, whom it alleges is high-profile crypto investor Roger Ver, owes the company $47 million. Ver, who has the nickname “Bitcoin Jesus” for his evangelical views of the industry in its early days, denies that he owes CoinFlex money.

The exchange said that ordinarily, an account that goes into negative equity would have its positions liquidated. But CoinFlex and Ver had an agreement that did not allow this to happen.

CoinFlex issued a new token called Recovery Value USD, or rvUSD, to raise the $47 million so it can resume withdrawals, and is offering a 20% interest rate for investors willing to buy and hold the digital coin.