- Over the weekend, the crypto market experienced a massive $1 billion in liquidations from futures positions due to rising recession fears
- Justin Sun, founder of Tron and Huobi (HTX), refuted claims of leveraged positions on HTX and announced a $1 billion fund to address market uncertainty
- The market’s decline was exacerbated by the Bank of Japan’s unexpected interest rate hike, which led to significant losses and panic selling among investors
Over the weekend, the cryptocurrency market experienced a significant drop with over a billion dollars in futures positions being liquidated due to fears of an impending recession. Justin Sun, founder of Tron and Huobi, denied rumors that leveraged futures positions on HTX were liquidated during the market’s sharp decline and pledged a $1 billion fund to support the market.
$1 Billion Pledge
Justin Sun, founder of Tron and Huobi (HTX), has denied rumors that leveraged futures positions on HTX were liquidated in the past 24 hours during the market’s sharp decline, stating that HTX “rarely” engages in leveraged trading.
Sun then promised to set aside $1 billion “to combat fear, uncertainty, and doubt, invest more, and provide liquidity,” although details about this proposed fund remain elusive compared to his initial announcement.
Emerging Speculations
Speculation about large leveraged positions on HTX began on July 12 when Ki Young Ju, founder of CryptoQuant, drew attention to a $515 million long Bitcoin futures position opened on the platform.
According to the analyst, staked Tether (stUSDT) stablecoins were likely used as collateral for the loan, noting that HTX’s $24 million Tether stablecoin USDT reserve remained intact. When Ju contacted Sun and the HTX team for clarification, Sun denied the accusations of being responsible for the large leveraged position.
Sun expressed “frustration” and claimed that the clients of the exchange, who are also allowed to use stUSDT and aEthUSDT as collateral, were responsible for the large futures position. Additionally, Ju claimed that Sun refused to reveal who was responsible for the operation, citing HTX’s client policy that the exchange does not comment on or provide information about client trades.
Market Turbulence
The failure of a long-standing market operation known as the “yen carry trade,” which involves taking out low-cost yen-denominated loans to purchase dollar-denominated assets, is largely responsible for the sharp drop in crypto and stock markets that occurred on August 5.
The sudden increase in interest rates by the Bank of Japan, rising from 0.1% to 0.25%, caused many loans to become distressed, creating a situation where many positions now have a higher dollar price than what they were initially taken out for. As a result, investors rushed to sell assets to close out these losing positions and protect themselves from the risk of a future rate hike by the Japanese central bank.
Crypto markets reacted with a loss of over $1 billion as investors hurried to stabilize losses caused by the recent interest rate increase. Bitcoin’s price briefly fell below $50,000, reaching a low of around $49,000 on August 5.
Institutional investors also sold in a panic. Weekly data on crypto investment inflows revealed $528 million in outflows following the market downturn and broader concerns about a looming global recession.
Conclusion
The sharp decline in crypto markets, amplified by the increase in Japanese interest rates, has caused significant losses and panic selling among investors.
While Justin Sun denies the accusations of leveraged trading, the market remains unstable with substantial outflows and global concerns about a potential recession.
