Losses are blowing holes in balance sheets and pushing firms in the industry to near bankruptcy. A British Virgin Islands court this past week ordered a hedge fund that had survived several crypto downturns to liquidate. After a pair of cryptocurrencies crashed, wiping out billions of dollars in value in May.

A British Virgin Islands court this past week ordered a hedge fund that had survived several crypto downturns to liquidate. Another platform that counts the hedge fund as an investor capped withdrawals while evaluating how the fund's woes would affect its liquidity. Turmoil in the digital-assets ecosystem has grown in recent weeks, with losses in cryptocurrencies blowing holes in balance sheets.

A handful of crypto players have established financial ties throughout the market. At least one lender, Celsius Network LLC, draws on collateral to do its own borrowing. “Everything is deeply, deeply intertwined; we didn’t have this in 2018,” says head of research at CoinShares.

During the 2007-08 global financial crisis, bank-lending practices including rehypothecation of assets left banks short on liquidity. In the aftermath, regulators tightened oversight. Digital asset prices have been falling dramatically along with other speculative bets in response to the Federal Reserve’s move to raise interest rates.
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