The Four Horsemen of the Cryptopocalypse: Terra, Celsius, 3AC, and Voyager

crypto crash The Celcius collapse. Lessons to learn from crypto

The last three months have been punishing for crypto investors. Over $1.4 trillion worth of value has been erased from the crypto market from April to July 2022.

Most investors might credit this wipeout of value to the world’s largest cryptocurrencies: Bitcoin and Ethereum. They’re down more than 80% from their all-time highs, but crypto’s wild losses have little to do with the industry’s royalty. In fact, many crypto investors really don’t understand why the music stopped.

crypto collapse - crypto chart market cap

Crypto total market cap ($). Via [TradingView.]

In reality, crypto’s crash may have more to do with changing dynamics in global markets and the collapse of a top-10 blockchain. The collapse could have also been steepened by wildly undisciplined crypto businesses and leverage.

These factors have all harmonized to give crypto’s downturn a cinematic conclusion – and four high-profile crypto products have emerged as the “Horsemen of the Cryptopocalypse.” They coincide with some of the lowest lows that this high-flying asset class has seen since January 2021 – and they mark an end of days for the crypto’s fourth bull run.

Whether crypto will recover from its latest ills has yet to be seen, but understanding these horsemen might be instrumental to understanding the future of digital assets. It also might be instrumental in avoiding a recurrence. 

The First Horseman: Terra and TerraUSD Falls Apart

At the start of May 2022, the Terra blockchain and its TerraUSD stablecoin were two of crypto’s top-10 assets. By the end of it, both were dead.

The failure of Terra had largely to do with its ill-fated stablecoin TerraUSD, which was supposed to be pegged to the value of a dollar. Billions of dollars worth of deposits trickled into the stablecoin because of Anchor Protocol, a Terra-based protocol which promised 19.5% APY yields.

In the grand scheme of things, those high yields meant little to investors. Unlike other stablecoins such as USD Coin (USDC) and Tether (USDT), the TerraUSD was not backed directly by U.S. Dollars. Instead, it was backed by an algorithmic mechanism called seigniorage, which used the price of the blockchain’s cryptocurrency to help maintain price parity with a dollar. 

The relationship with Terra and TerraUSD was meant to stabilize it in dire times. Instead, it accelerated its crash into the ground.

As both assets fell rapidly, they were unable to stabilize each other, destroying the ability of seigniorage to restore price parity. Both assets failed, wiping out over $60 billion worth of market capitalization.

Indirectly, it also wrecked the crypto market – including Bitcoin, which Terra’s Luna Foundation Guard (LFG) owned over $3 billion of at the time of its implosion. That money largely disappeared during the Terra collapse. And since Bitcoin is more-or-less the market leader, as it fell, so too did many other assets.

Almost every crypto investor was affected by the collapse of Terra. However, many unknowing investors were also looped into its failure. Two consumer-facing products which invested in Terra’s high-interest anchor protocol – Stablegains and Alice – lost millions in customer deposits and misrepresented risk to many ambitious investors.

This ultimately became an augury of what was to come in the crypto market.

Related: 3 Crypto projects that went wrong | Crypto crashes in 2022.

The Second Horseman: Celsius’s Withdrawal Freeze

With the market down on its luck, many crypto companies began spiraling. Firms which bet on risky strategies which paid in the bull market were seeing the spokes fall off during the contraction. Among them were companies which took after Stablegains and Alice in a number of ways, but were considerably larger in terms of scale.

One of them was Celsius, which allows investors to put their crypto assets to work in the world of decentralized finance (DeFi). They’re an intermediary that helps investors fetch high yields on their digital assets – stablecoins such as $USDC could fetch 7- 9%, while Ethereum would fetch between 6-7%. 

Those DeFi yields, much like in the case of TerraUSD and Anchor Protocol’s, had a certain allure – that’s why more than 1.7 million users custodied more than $20 billion at Celsius. By one estimate, Celsius represented nearly a tenth of all money deployed in DeFi at its peak.

Unfortunately, the company froze user funds though; withdrawals, swaps, and transfers were paused on June 12, 2022. The company faulted “extreme market conditions” for halting freedom of funds.

In reality, the real fault may lie with things that have already happened – Celsius reportedly has a $2 billion hole in its balance sheet, which could be chocked up to enormous amounts of ineptitude with the handling of user deposits.

Simply put, they lost money they didn’t have. The situation was reportedly so bad that cash-flush crypto giant FTX reportedly passed up buying the company at a significant discount. 

These losses are proportionally larger than in previous cycles’ big implosions. The failure of Bitcoin exchange Mt. Gox, which held 7% of all bitcoins in circulation at the time of their hack in 2014, cost investors the equivalent of $473 million. When you stack that hack against Celsius’s reported multi-billion dollar disaster, Celsius’s self-inflicted losses feel almost biblical.

As of July 2022, user deposits have not been thawed – and the company is reportedly resisting Chapter 11 bankruptcy proceedings. It’s unknown what losses could be rendered to the thousands who used Celsius as a trusted custodian of their assets. At the time, it might have been the highest profile failure of a consumer-facing crypto app.

However, our story doesn’t stop here…

The Third Horseman: The Crash of Crypto Fund Three Arrows Capital (3AC)


3 Arrow Selling. Via [The Defiant.]

The makings of a third meltdown were taking place as Celsius’s star was falling. However, our third horseman wasn’t “dumb money”, it was the multi-billion dollar Three Arrows Capital (3AC.)

The Singapore-based crypto hedge fund had more than $10 billion worth of assets in March 2022; that number sank to $3 billion in April 2022. 

However, that was before the fund incurred “heavy losses” from the collapse of the Terra and TerraUSD ecosystem. It stopped short of sounding off the alarm. Instead, it said it would look into the “possibility of asset sales and a rescue by another firm,” according to a Coindesk article published June 17, 2022.

3AC’s deep balance sheet complicated this problem. Not only was it one of the largest holders of the Grayscale Bitcoin Trust (GBTC) and staked ether, but it owned a slew of other assets which were rapidly devaluing.

Related: Lessons Learned from the Crypto Collapse.

And to top it all off, the fund had borrowed exceptionally large amounts of money from exchanges and counterparts – implying that their whole strategy was leveraged and bullish (two things you do not want to be when the market heads south). That’s when the rumor mill had its way with 3AC, and ultimately proved quite accurate.

Shreds of truth slowly emerged from the speculation: 3AC was forced into liquidation by a court in the British Virgin Islands after failing to honor a loan with crypto exchange Voyager Digital. Then, days later, it filed for bankruptcy.

By early July, the three horsemen had brought about a rapture in the crypto space – the failure of these nights was afflicting a number of other platforms. Among them were BlockFi and Babel Finance, to name a few. 

But they were by no means the only companies afflicted: Coinbase and announced layoffs, Meta announced plans to shutter their cryptocurrency wallet pilot, and FTX began writing checks to bail out many of crypto’s embattled lender-borrow services and consumer apps.

Alas, our fourth horseman’s entrance was still in the oven.

The Fourth Horseman: Crypto Exchange Voyager Freezes Trading

Voyager Digital was once considered by retail investors to be a promising alternative to Coinbase,, and Binance. The company’s selling point? No fees to place trades. That allure attracted over two millions investors to the platform since its inception in 2018.

The bull run also brought about robust interest in the exchange. It went public on the Toronto Stock Exchange last year after users came to the platform. It closed out its first week of trading at CAD$16.72. 

However, if you want to know something about a company – you can look at a chart. And Voyager Digital’s stock offers insight into the slow burn of the crypto market. It also offers some hints into investors’ fears about the contagion, which Voyager found itself caught up in.

The exchange announced at the start of July that it would pause customer trading, deposits, and withdrawals. The news came days after Voyager announced that a customer failed to make payments on a “loan worth hundreds of millions of dollars,” according to a CNBC article. That loan belonged to the already-collapsed Three Arrows Capital, which had defaulted on the $670 million loan.

However, Voyager and its $1.3 billion worth of crypto assets on platform were on ice; and there were few ways to claw back the $670 million loan. With that insight, equity investors began to price Voyager more appropriately. At the start of May 2022, Voyager had sunk to CAD$4.53 – it lost more than 20% of its value in the next 30 days. 

But the month of May couldn’t hold a candle to the losses that followed in June, as Celsius, BlockFi, and 3AC all experienced failures. The stock lost nearly 90% of its value between the start of June and the close on July 5, 2022. It traded at just CAD$0.34, a -98% drop since IPO.

Ultimately, investors were right to value the once multi-billion dollar exchange at its new-found $65 million market capitalization. On July 6, the company announced a “voluntary financial restructuring process,” which is PR talk for Chapter 11 bankruptcy proceedings.

As of publication on July 8, 2022, the $1.3 billion in user deposits were still frozen. Even assets which were said to be “FDIC insured” were not withdrawable because the bank where they were custodied, Metropolitan Commerce Bank, was not going under – only Voyager was. For that, Voyager offered up $350 million in cash “For Benefit of Customers (FBO)” which would be made available at a later date.

In terms of risk, Voyager – as an exchange – should have been a relatively safe place to custody user funds. Unfortunately, because of undisciplined lending, the exchange was kicked out of practice. 

How Can the Crypto Industry Avoid A Fifth Horseman? (Or A Repeat?)

Years from now – when investors look back at the end of crypto’s fourth bull run – they will see commonalities in the failure of Terra, Celsius, Three Arrows, and Voyager. They will see their unprecedented failings as a contagion; a domino effect, where weak and ailing crypto organizations compound to take down larger and unprepared ones.

In the current cycle, it’s hard to say for sure whether the worst has come to pass. However, the industry has been shaken – and both operators and regulators are likely to have taken note. As a result of the fallout from April 2022 to July 2022, crypto organizations might operate with greater discipline or consideration of market conditions.

The crypto industry is fickle, though. Its four bull cycles have all concluded in fantastically awful fashion; the losses seem to get larger with every passing cycle – but so too do the market capitalizations and values of major cryptocurrencies and the broader market. That can be credited to retail and institutional investor interest, which may or may not return in a hypothetical fifth bull cycle, dependent on PR, global economic conditions, and whether or not regulators create a more legitimate framework for crypto businesses.

It may be months or years before crypto gets back on its feet; alternatively, it might never recover to the highest highs it has seen in the industry’s 13-year history. However, a decisive conclusion that can be made from each of these cycles – and the weeks past – is that the first to lose are retail investors. 

Suppose you happen to be involved in one of these crypto crashes or hold crypto assets. It is more critical than ever to stay alert and do meaningful research into the risks and hazards involving avant-garde asset classes and unproven platforms. Connect your crypto wallets and track your coins, tokens and NFTs in one place. You can also connect your brokerage accounts to avoid logging in to your different exchanges. 

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