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

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1. Macroeconomic pressure

2. TerraUSD collapse

The episode reverberated through the industry and had knock-on effects, most notably on cryptocurrency hedge funds Three Arrows Capital, which had exposure to terraUSD (more on this below.)

3. Lender Celsius pauses withdrawals

Crypto lender Celsius paused withdrawals for customers in June.

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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.

4. Three Arrows Capital liquidation

Three Arrows Capital is one of the most prominent hedge funds focused on cryptocurrency investments.

The decade-old firm, also known as 3AC, started by Zhu Su and Kyle Davies, is known for its highly leveraged bullish bets on the crypto market.

3AC had exposure to the collapsed algorithmic stablecoin terraUSD and sister token luna.

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.

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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.

5. CoinFlex-‘Bitcoin Jesus’ spat

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.

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