Ethereum Collateral on the Brink of Liquidation: Doom for DeFi?

The whole market for cryptocurrencies has been on an unstoppable decline since the end of last year. We are used to volatility in this market, price movements of 10% or more actually occur every day. But even for a prolonged bear market, most crypto is now falling very hard. Yet there are new indications that things can get even crazier.

ETH winding around the corner

On Twitter, blockchain analyst writes Colin Wue Which ETH tokens worth nearly $500 million are about to be liquidated at $1150. He discovered this thanks to DeFi analysis tool Parsec Finance.

And it’s not just about ether (ETH). Also bitcoin (BTC) is close to a liquidation of on-chain collateral. According to Parsec, approximately USD 300 million will be wrapped BTC (wBTC) used as collateral. These are around a bitcoin price of 21,600 US dollars margin calls† at a margin call Bitcoins must be bought or the collateral sold to close the position.

The price of both bitcoin and ether is only about 20% away from this price at the time of writing, and such a drop could be hard.

Levers are the problem

If there’s one person who warned us about this, it’s the legendary investor Michael Burry well. This investor predicted the housing crisis, on which the book and film The Big Short is later based. In a tweet from June last year he wrote The problem with crypto is leverage. If you don’t know how much leverage there is in crypto, then you know nothing about crypto.’

Burry was once again wickedly correct. And the biggest problem is that it is not necessarily immediately clear how much money is involved. What we do know is that there are even institutions that come eerily close to margin calls. Michael Saylor’s MicroStrategy is a good example of this.

Recently, Saylor stated that he would continue to buy bitcoin no matter what his company had money to spare, and his margin call is already around $21,000. HODL strong, but it is very wise not to use levers at this point. A few extra euros and dollars can’t hurt either.