Crypto bank runs in 2022 catalyzed by institutional withdrawals: Research
The 2022 crypto bank runs — caused by the failure of multiple ecosystem giants — have had a lasting impact on the crypto industry. A new research report from the Federal Reserve Bank of Chicago (FRBC) has identified several key factors and catalysts that accelerated last year’s crypto crisis.
The report identified that withdrawals by crypto whales and large account holders on centralized exchanges, including some key institutional accounts, created a liquidity crisis that eventually led to the bank run.
The first crisis came from the Terra collapse, spurring customer outflows for many crypto lenders with exposure to the Terra ecosystem. Celsius and Voyager Digital saw outflows of 20% and 14% of their customer funds, respectively, in the 11 days after the collapse. Celsius had also invested nearly a billion dollars in Terra’s failed algorithmic stablecoin.
The second major crisis, catalyzed by high customer outflows, came from Three Arrows Capital’s (3AC) downfall in July 2022. Celsius and Voyager Digital saw another round of outflows of 10% and 39%, respectively, due to their exposure to the bankrupt 3AC.
3AC became a major source of contagion in the crypto industry as multiple firms had lent billions in crypto assets to the hedge fund, resulting in a major crisis after its failure. Genesis Capital provided 3AC with loans totaling around $2.4 billion; BlockFi provided $1 billion; Voyager Digital provided $350 million and 15,250 Bitcoin, worth approximately $328 million in July 2022; and Celsius provided around $75 million.
The third major crisis came from the FTX collapse in November 2022. The crypto exchange itself saw outflows of over 37% in customer funds as news about its financial instability became public. Genesis and
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