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Did Celsius’ Withdrawal Trigger The Terra/ LUNA Collapse? Claim & Response

Did Celsius set off the domino effect? Almost a month ago, The Block Crypto reported that Celsius pulled at least $500M from the Anchor protocol before the collapse. Two weeks ago, blockchain analytics firm Nansen identified Celsius among the seven big wallets that allegedly triggered the bank run on Anchor. Recently, Celsius responded. 

Is this the explanation for the Terra/ LUNA collapse? Was this whole situation not a deliberate attack? Were natural market forces responsible instead? The estimation is that 75% of all UST in existence was locked in the Anchor Protocol, a service that offered a suspiciously high 19.5% yield. That number was one of the main drivers behind UST and LUNA’s success. It’s only logical that the bleeding started there. 

According to this theory, how did all of this happen? Let’s explore the facts and explanations provided by all parties involved.

Nansen Identifies Celsius

When the Terra/ LUNA crash happened, the first and main theory was a deliberate attack on a perceived vulnerability. According to Nansen’s “On-Chain Forensics: Demystifying TerraUSD De-peg” report, “this on-chain study refutes the narrative of one “attacker” or “hacker” working to destabilize UST.” How did it happen, then? Well, the natural market forces unraveled the poorly designed algorithmic stablecoin. Back to Nansen:

“Our analysis leveraged on-chain data to demystify what happened before and during the UST de-peg. Through the examination of on-chain activities, we found that a small number of wallets and a likely even smaller number of entities behind these wallets led to imbalances in the Curve liquidity protocols that were regulating the parity between UST  and other stablecoins.”

One of those wallets belonged to Celsius. Did they know a collapse was incoming? Or did they just react first to a dangerous situation?

UST price chart on Coinbase | Source: UST/USD on TradingView.com
Celsius ’ Explanation Puts Things In Perspective

The Terra/ LUNA collapse began on May 9th. Two days later, Celsius tweeted this cryptic message: “As part of our responsibility to serve our community, Celsius Network implemented and abides by robust risk management frameworks to ensure the safety and security of assets on our platform. All user funds are safe. We continue to be open for business as usual.”

As part of our responsibility to serve our community, @CelsiusNetwork implemented and abides by robust risk management frameworks to ensure the safety and security of assets on our platform.

All user funds are safe. We continue to be open for business as usual.

— Celsius (@CelsiusNetwork) May 11, 2022

What did Celsius mean? The circumstances forced them to explain themselves. In the article “Search Continues for Source of TerraUSD Crypto Bank Run,” the Wall Street Journal paraphrases them:

“Celsius said that its risk-management group recognized “shifts in the stability” of the platform that prompted it to remove its assets only for the sake of protecting its customers’ money. The company didn’t profit from the instability, it said.”

It also confirms that one of Celsius ‘ business models was to simply accept deposits from their customers, lock the funds in Anchor at a 19.5% yield, offer their clients a 14% yield, and pocket the difference. However, “it wasn’t clear to investors that their money in a Celsius account might have been invested in the Anchor platform. Celsius, Voyager and others in the industry don’t usually disclose their counterparties.”

Where Does The Money Come From?

The Wall Street Journal article went deeper than the Terra/ LUNA collapse. It pointed a magnifying glass at DeFi in general. 

“In DeFi, it isn’t easy to understand who provides money for loans, where the money flows or how easy it is to trigger currency meltdowns. This is one reason regulators are concerned about the impact of DeFi on investors and the broader financial system.”

As an example of that, check out The Block Crypto’s explanation of how Celsius staked its money in the Anchor Platform. Apparently, doing all of this instead of buying UST directly is what saved the company, but it’s still borderline ridiculous:

“The process of depositing funds to Anchor Protocol was convoluted. Igamberdiev explained that it involved first staking ETH using Lido to receive Staked ETH (stETH); then sending stETH to Anchor vault on Ethereum in order to mint and send bETH (a token representation of stETH) to Wormhole, a crypto bridge; minting bETH on Terra using Wormhole; before finally depositing bETH to Anchor Protocol.”

We gave Celsius the right to reply. It’s only fair that we end this with Cory Klippsten’s criticism of the service, Swan Bitcoin’s CEO told the WSJ: 

“It’s being marketed as a better savings account and it’s not. What you really are doing is, you’re an unsecured lender. They’re gathering retail loans and investing it out the back end in lightly regulated activities.”

Remember, these are all theories. Do what you will with all of the information in this article. Plus, do your own research.

Featured Image de Bradyn Trollip en Unsplash | Charts by TradingView

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Top 5 Watershed Moments In BTC On-Chain Analysis’ History. Is Your Favorite In?

These five moments shaped Bitcoin On-Chain analysis. Down below you’ll find a basic 101 article that reviews the basic concepts of the trade. If you have any problem with the list, David Puell is to blame. He’s a full-time on-chain analyst and the creator of MVRV and Puell Multiple. He didn’t include the metrics he created on the list, which says a lot.

Related Reading | Lessons From Reason’s “The Fake Environmentalist Attack on Bitcoin” Mini-Doc

In the following article, there’s also something for on-chain analysis experts. A side game called: Did your favorite moment make it? 

1. ByteCoin invents cointime destroyed in 2011, the very first on-chain metric ever, still used today, and first metric to detect holding behavior in any financial asset.

— David Puell (@kenoshaking) February 17, 2022

Anyway, let’s get into it.

On-Chain Analysis Moment #1- ByteCoin Invents Coin Days Destroyed (CDD) AKA Coin Time Destroyed

Invented In 2011, according to Puell, CDD is “the very first on-chain metric ever, still used today, and first metric to detect holding behavior in any financial asset.” How does the metric detect holders, though? According to Glassnode Academy, “Coin Days Destroyed is a measure of economic activity which gives more weight to coins which haven’t been spent for a long time.”

So, the first eureka moment was to get the coin’s age into the equation. That way, the all-important holders also entered. Glassnode again:

“It is considered an important alternative to looking at total transaction volumes, which may not accurately represent economic activity if value was not stored for a meaningful time. Conversely, coins held in cold storage as a long term store of value are considered economically important when they are spent as it signals a notable change in long-term holder behaviour.”

BTC price chart for 02/17/2022 on Gemini | Source: BTC/USD on TradingView.com
2. Moment #2 – Willy Woo and Chris Burniske Invent NVT Ratio 

This one emerged in 2017, and, according to Puell, it’s “where on-chain begins its Golden Age and became clearly an ecosystem of specialists”. It’s also “the first application of traditional economic/financial concepts to Bitcoin”. But, what’s the NVT Ratio specifically? Glassnode Academy responds:

“Network Value to Transactions (NVT) Ratio describes the relationship between market cap and transfer volume. Per Willy Woo, its creator, NVT can be considered analogous to the PE (price to earnings) Ratio used in equity markets.”

Another way to look at it is, “NVT is that it is the inverse of monetary velocity, comparing two of Bitcoin’s primary value propositions”. Those are store of value Vs. settlement/payments network.

3. @nic__carter and @khannib invent realized cap in 2018, the single most important and robust metric in the field, and first verifiable discovery of the cost basis of any asset.

— David Puell (@kenoshaking) February 17, 2022

On-Chain Analysis Moment #3 – Nic Carter And Antoine Le Calvez Invent Realized Capitalization

Created In 2018, Puell thinks Realized Capitalization is “ the single most important and robust metric in the field, and first verifiable discovery of the cost basis of any asset”. But, what is it exactly? According to Glassnode Academy, Realized Capitalization also makes on-chain analysis look into the age of the coins.

“Realized capitalization (realized cap) is a variation of market capitalization that values each UTXO based on the price when it was last moved, as opposed to its current value. As such, it represents the realized value of all the coins in the network, as opposed to their market value.”

Ok, “realized cap reduces the impact of lost and long dormant coins, and weights coins according to their actual presence in the economy of a given chain”. How does it do it, though? Glassnode again:

“When a coin that was last moved at significantly cheaper prices is spent, it will re-value the coins to the current price, and thus increase realized cap by a corresponding amount. Similarly, if a coin is spent at a price lower than when it was last moved, it will re-value to a cheaper price and have a corresponding decrease on realized cap.”

Moment #4 – Dhruv Bansal Invents HODL Waves 

Created in 2018, HODL Waves is the “last major primer in on-chain analysis, first metric to segregate supply into different conceptual frameworks”. According to Purell, it’s also the “most comprehensive economic time analysis on Bitcoin to date”. Surprising no one, HODL Waves also looks at the age of the coins. According to Glassnode Academy:

“HODL Waves provide a macro view of the age of coins as a proportion of total coin supply. This provides a gauge on the balance between short term and long term holdings. It can also indicate where changes in this age distribution occur as the thickness of HODL wave bands change in response to dormant coins maturing, or when old coins are spent, resetting their age into the youngest category.”

5. @ErgoBTC releases the forensics of PlusToken in 2019, the grey swan that defined the market structure of Bitcoin for that year and first relevant nation-state attack on the asset.

— David Puell (@kenoshaking) February 17, 2022

On-Chain Analysis Moment #5 – Ergo Releases The Forensics Of PlusToken

This famous case happened in 2019. According to Purell, it’s “the grey swan that defined the market structure of Bitcoin for that year and first relevant nation-state attack on the asset.” For a report on the situation, we had to consult Crypto Briefing, who spoke to:

“Ergo, the lead researcher of the report, told Crypto Briefing in an email that the most striking feature of this scam was its size. “Billion-dollar scams are very rare,” they said. “We did not expect the previously reported 200K BTC volumes to be accurate, but they were.”

Related Reading | Bitcoin On-Chain Demands Suggests That The Market Has Reached Its Bottom

The Ergo team also explained why the laundry of the funds didn’t work that well. It was because they practiced “self-shuffling.” What’s that, you ask? Crypto Briefing again: 

“It refers to the “repeated UTXO splitting and merging in hundreds of transactions,” according to the report. This method was both easy to track and the most common way in which PlusToken funds were handled.”

This case wouldn’t be complete without a big institution’s involvement. This time, the suspect is Huobi:

“Huobi played a major role in off-loading these funds too, with nearly 250,000 addresses associated with the PlusToken funds. These addresses were reduced to two clusters which were identified following the incompetent privacy standards.”

Of course, those are just suppositions. When it comes to the giant Huobi, nothing’s been proven.

Feature Image by analogicus on Pixabay | Charts by TradingView

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Bitcoin On-Chain Demands Suggests That The Market Has Reached Its Bottom

Bitcoin on-chain analysis can be a good way to try to guess where the market is headed. The market tends to repeat itself with metrics looking the same before a bull or a bear rally, thus making this data a pretty good indicator of what’s to come. Analyst Willy Woo uses this same data to demonstrate a pattern that occurs before the bull rally, the criteria which are being met once again.

Start Of A Bull Run?

In a recent string of tweets, analyst Willy Woo presents data from on-chain analysis that points to the bitcoin dump having reached its bottom. According to him, “Price in relation to on-chain demand from both speculative and hodl category of investors are now both at peak oversold levels.” Woo points out that the last time that something like this had happened was when bitcoin reached its bottom following the COVID crash.

Price in relation to on-chain demand from both speculative and hodl category of investors are now both at peak oversold levels.

The last time this happened was October 2020. The time before that was at the bottom of the COVID crash.

— Willy Woo (@woonomic) February 2, 2022

The analyst further outlines the times where this has happened in the past. Going as far back as 2012, he points out the same had been the case in February of that year. What followed had been the memorable 2021-2013 bull run that saw bitcoin gain more popularity among investors.

Related Reading | Bitcoin Halving To Bring The Subsequent Crypto Frenzy

Fast forward to 2015 and the same had been the case in January of that year. This time, the on-chain metric spelled the bottom of the bear market that had begun previously in 2014, putting an end to the onslaught.

If Woo is right and the on-chain metric continues the way it has historically, then bitcoin may very well have reached the bottom, suggesting that this is the end of the downtrend. However, there is no telling if this is actually the case given that bitcoin had recorded back-to-back bull rallies in 2021.

Bitcoin On The Charts

Bitcoin has lost almost 50% from its all-time high of $69k which it hit in November of last year. This has however not affected the profits of the majority of holders. The digital asset remains one with the highest volume of holders that remain in profit after the market crash.

Related Reading | El Salvador Chivo Bitcoin Wallet Relaunch To Serve 4 Million Users

According to data from IntoTheBlock, 60% of all bitcoin holders are still in profit at current prices. It is important to note that the cryptocurrency was subject to massive sell-offs when investors panicked that the downtrend will continue. Most however have still kept their highly profitable status, with only 35% of all holders currently losing at market prices.

Bulls struggle to pull BTC up as bears take hold | Source: BTCUSD on TradingView.com

The majority are long-term holders and indicators point to investors still being very bullish on the digital asset despite the downtrend. With its current growth curve, it is expected that the cryptocurrency will see 1 billion holders in the next four years, making it a highly sought-after asset.

Featured image from Bitcoin News, chart from TradingView.com