Justin Sun Addresses Liquidation Speculations During Market Decline

During the weekend, the cryptocurrency market faced significant turmoil, resulting in the liquidation of over $1 billion in futures positions as concerns regarding a potential recession heightened.

Justin Sun, who is the founder of Tron (TRX) and Huobi (HTX), refuted claims that there were forced liquidations of leveraged futures positions on the HTX exchange during this recent market decline. He asserted that HTX rarely participates in leveraged trading.

In response to the ongoing anxiety surrounding market conditions, Sun announced plans to allocate $1 billion to “combat fear, uncertainty, and doubt, invest further, and enhance liquidity,” though specific details regarding this fund remain unclear at this time.

Resurfacing Rumors

Speculation regarding significant leveraged positions on HTX originated on July 12, after Ki Young Ju, the founder of CryptoQuant, highlighted a $515 million long Bitcoin (BTC) futures position on the platform.

Ju suggested that staked Tether stablecoins (stUSDT) may have been used as collateral for this trade, noting that HTX’s $24 million Tether stablecoin (USDT) reserves remained intact. When Ju reached out to Sun and the HTX team for clarification, Sun denied responsibility for the large leveraged position, expressing frustration and indicating that clients of the exchange were utilizing stUSDT and aEthUSDT as collateral for their trades.

Ju also noted that Sun had declined to disclose who was responsible for the trade, citing HTX’s customer confidentiality policy that prohibits the exchange from commenting on or sharing information regarding client trades.

Market Instability

The sharp downturn in both cryptocurrency and stock markets can largely be attributed to the unwinding of the “yen carry trade.” This trade involves borrowing at low interest rates in yen to invest in higher-yielding dollar-denominated assets.

A hike in interest rates from the Bank of Japan, increasing from 0.1% to 0.25%, has left many loans in a precarious position, with the current value of assets surpassing the loans’ original amounts. In response, investors have been hastily selling off assets to mitigate losses and protect against potential further rate increases from the central bank.

The crypto market has seen significant losses, with reports indicating that over $1 billion was liquidated as investors scrambled to address shortfalls due to the recent interest rate increase. Bitcoin briefly dropped below $50,000, reaching a low of around $49,000 on August 5.

Furthermore, institutional investors have also reacted negatively, as evidenced by data showcasing a substantial outflow of $528 million from crypto investment vehicles amid the ongoing market decline and rising fears of a global recession.