CryptoPotato
CryptoPotato
  • Crypto News
  • Margin Trading
  • Guides
    • Bitcoin & Crypto Guides 101
    • Bitcoin For Beginners
    • Editorials
  • DeFi & NFT
  • Buy
  • Language
    • Spanish
    • Turkish
    • German
    • Bulgarian
  • Crypto News
  • Bitcoin For Beginners
  • Cryptocurrency Guides 101
  • Editorials
  • Bitcoin & Crypto Margin Trading
  • DeFi & NFT News
  • Bitcoin Price Analysis
  • Ethereum (ETH) Price Analysis
  • Ripple (XRP) Price Analysis
  • Market Updates
  • Interviews
  • Buy Bitcoin with Card
  • CryptoPotato Spanish
  • CryptoPotato Turkey
  • CryptoPotato Germany
  • CryptoPotato Bulgaria
  • Market Updates
  • BTC Analysis
  • ETH Analysis
  • XRP Analysis
  • Interviews
CryptoPotato
CryptoPotato
  • Crypto News
  • Margin Trading
  • Guides
    • Bitcoin & Crypto Guides 101
    • Bitcoin For Beginners
    • Editorials
  • DeFi & NFT
  • Buy
  • Language
    • Spanish
    • Turkish
    • German
    • Bulgarian
  • Crypto News
  • Bitcoin For Beginners
  • Cryptocurrency Guides 101
  • Editorials
  • Bitcoin & Crypto Margin Trading
  • DeFi & NFT News
  • Bitcoin Price Analysis
  • Ethereum (ETH) Price Analysis
  • Ripple (XRP) Price Analysis
  • Market Updates
  • Interviews
  • Buy Bitcoin with Card
  • CryptoPotato Spanish
  • CryptoPotato Turkey
  • CryptoPotato Germany
  • CryptoPotato Bulgaria
Home » Crypto News » More Liquidation Ahead Before the Crypto Market Recovers: Cumberland

More Liquidation Ahead Before the Crypto Market Recovers: Cumberland

Author: Jay Zhuang

Last Updated Jul 6, 2022 @ 15:12

Cumberland suggests that more badly managed assets need to be liquidated in order to see a fundamental market reversal.

Getting your audio player ready...

Crypto trading firm Cumberland weighed into the ongoing trend of centralized digital asset firms falling apart amid a deepened liquidity crisis clouding the industry. It suggests that the overall market’s immediate recovery partially hinges upon whether the distressed assets could be transferred from insolvent firms to solvent ones.

Crisis Not Over Yet

When a prolonged bear market hits the crypto industry, over-leveraged firms tend to be in deep trouble as their collateral plunges in value, soon leading to liquidation. As a result, a ripple effect spreads across the industry, toppling down one firm after another. When users all rush to withdraw funds, heightening the liquidity issue, some firms may have to conduct extreme measures like suspending withdrawals and transactions.

Given the context of a series of firms already halting withdrawals, reducing headcount, and looking for restructuring, Cumberland argued that the deteriorated market condition is in a state of uncertainty as more troubled companies may soon collapse due to their colossal sizes of liabilities. More badly managed firms need to have their assets liquidated to “partially offset their outstanding liabilities,” the report said.

As more crypto assets get liquidated, prices will continue plummeting, meaning more pain ahead for the industry. Cumberland viewed the ongoing crisis as quite similar to what had happened in the traditional markets since “the underlying economics are no different than the examples in textbooks.”

Additionally, the firm believes the recovery of the badly beaten crypto market depends on how those insolvent firms manage their “distressed assets.”

This is hardly a novel phenomenon; excessively levered finance companies have been punished in bear markets for hundreds of years. While this current cycle raises eyebrows because the assets are digital, the underlying economics are no different than the examples in textbooks.

— Cumberland (@CumberlandSays) July 5, 2022

For instance, FTX sent a $250M revolving credit line to BlockFi weeks ago for funding its operations and repaying existing loans. Later, the exchange giant increased the amount to $400M, with the privilege of acquiring the failing lending firm at a discount of $240M in the future.

DeFi Vs CeFi

When investors are hesitant to pour capital into the crypto space, as shown by the decline of off-chain inflows, volatility tends to increase as asset liquidity decreases. Unlike CeFi, which entails complicated human-controlled processes for capital deployment, DeFi has demonstrated relative strength when it comes to transparency regarding liquidation levels as well as its distance from the spot market, Cumberland noted.

Known for its algorithmic-driven mechanism that forcefully executes smart contracts despite market conditions, DeFi protocols would automatically liquidate collaterals whenever the thresholds are touched. It partially explains why they have outperformed centralized firms that offer similar services off-chain during the massive market crash.

SPECIAL OFFER (Sponsored)
Binance Free $600 (CryptoPotato Exclusive): Use this link to register a new account and receive $600 exclusive welcome offer on Binance (full details).

LIMITED OFFER for CryptoPotato readers at Bybit: Use this link to register and open a $500 FREE position on any coin!

Tags: BlockFi DeFi
Enjoy reading? Share with your friends
Facebook Twitter LinkedIn Telegram

About The Author

Jay Zhuang
More posts by this author

Jay Zhuang is a journalist and artist with a background in digital art curation. He started writing about cryptocurrency in 2020 and began contributing to DAOs in 2021. He can be reached on Twitter.

Join Our Community

FacebookX YouTubeTelegram


Editorials
How to Trade on Hyperliquid: The Ultimate Guide (Step-by-Step Walkthrough)

How to Trade on Hyperliquid: The Ultimate Guide (Step-by-Step Walkthrough)

11 Best Meme Coins to Watch in June 2025

11 Best Meme Coins to Watch in June 2025

7 Best Meme Coin Presales to Watch in June 2025

7 Best Meme Coin Presales to Watch in June 2025

Toobit Review 2025: Is Toobit a Safe Crypto Exchange?

Toobit Review 2025: Is Toobit a Safe Crypto Exchange?

Hyperliquid Bridge: How to Bridge USDC to Hyperliquid

Hyperliquid Bridge: How to Bridge USDC to Hyperliquid

11 Best Crypto Presales to Consider in June 2025

11 Best Crypto Presales to Consider in June 2025

Need for Speed – Only Ultra-Fast Blockchains Will Win the Adoption Race (Opinion)

Need for Speed – Only Ultra-Fast Blockchains Will Win the Adoption Race (Opinion)

Join Our Newsletter
Become a CryptoPotato VIP
One Weekly Email Can Change Your Crypto Life.
Sign-up FREE to receive our extended weekly market update and coin analysis report
We NEVER send spam. You can unsubscribe at any time.
Invalid email address
Thanks for subscribing!
Footer Logo
About
Advertise on CryptoPotato
About Us | Contact Us | Careers
Editorial Policy
Terms of service | Privacy Policy | GDPR
More Sections
IEO List | Evaluations
Airdrops
Scholarship
Disclaimer
Disclaimer: Information found on CryptoPotato is those of writers quoted. It does not represent the opinions of CryptoPotato on whether to buy, sell, or hold any investments. You are advised to conduct your own research before making any investment decisions. Use provided information at your own risk. Full disclaimer
© Copyright CryptoPotato 2016 - 2025
Scroll to top
One Daily Email Can Change Your Crypto Life.

Sign-up FREE to receive our extended daily market update and coin analysis report

We never send SPAM. You can unsubscribe at any moment
Invalid email address
Thanks for subscribing!