The cryptocurrency has lost 70% of its value from its record high in November
Concerns about the Federal Reserve’s actions to contain higher-than-expected inflation have pushed stocks and cryptocurrencies into a bear market. Big names in the industry, including Coinbase Global Inc.,
The largest cryptocurrency exchange in the US recently announced job cuts.
“Bitcoin is breaking the $20,000 price level given the pessimism we have in the market,” said Naeem Aslam, AvaTrade market analyst. He added that the fallout of stablecoin Terra USD in May will continue to result, and that this is a depressing sentiment.
According to Coinbase, the $20,000 level does not hold much significance, but the price declined below the $19,783 level it hit the previous high water mark in 2017. Bitcoin bulls have long believed that the cryptocurrency has entered a new phase of growth and acceptance in recent years, and that it will not drop below 2017 levels.
“It will be a lot of pain for a lot of investors,” said Yuya Hasegawa, market analyst at Japanese crypto exchange BitBank Inc. People will lose faith in the crypto market as a whole, but experienced crypto investors and those who believe in it said that its long-term prospects will be worth buying at discounted prices.
For Wayne Sharp, a retired investment advisor in Columbus, Ohio, the cratering crypto market was no surprise. He bought around $10,000 worth of bitcoin in 2020 and has been sitting on it ever since, with no plans to sell or buy it. “I’ve seen a lot of cycles. I’ve been seeing it for 45 years,” she said. “Humans make the same mistakes over and over again.”
Ether, another major cryptocurrency, gained 19% to $1,141.52 after falling below $1,000 on Saturday. According to CoinDesk, its lowest level since January 2021 is $880.93.
Bitcoin’s fall from a record high of $67,802 in November has contributed to a near $2 trillion wipeout from the broader market. According to data provider CoinMarketCap, the total market capitalization of crypto, which peaked at nearly $3 trillion in November, stood at about $834 billion on Saturday—the lowest since January 2021.
Bitcoin traded around $30,000 for most of May before falling sharply again in June following a fresh inflation shock and concerns about a rise in US interest rates. Investors are offloading risky assets such as cryptocurrencies and technology stocks.
According to data provider CoinGlass, margin calls have been received by individual investors with approximately $349.25 million of collateral pledged by approximately 88,415 retail traders over the past 24 hours. This compares to $1 billion earlier this week.
More previously high-flying crypto firms are feeling the pain of what’s been dubbed the “crypto winter”. Cryptocurrency lender Babel Finance told customers on Friday that it was suspending redemptions and withdrawals from all products, citing “unusual liquidity pressures.” One of the largest crypto lenders, Celsius Network LLC, has not allowed users to withdraw funds for almost a week, citing extreme market conditions.
The firm’s founders told Businesshala that cryptocurrency-focused hedge fund Three Arrows Capital Ltd. has hired legal and financial advisors to help it work out a solution for its investors and lenders.
A sudden squeeze in available, spendable capital, often referred to as liquidity, is fueling the sell-off, and it’s not something that can be easily fixed, said Ryan Shea, an economist at crypto investment firm Trax. Unlike traditional markets, “there is no central bank to step in and intervene, the process just has to play out,” he said.
The surge in cryptocurrency valuations over the past two years was aided by big-name investments from companies like Tesla. Inc.
And a period of low interest rates during the pandemic that encouraged people stuck at home to buy riskier assets in the hope of higher returns.
Interest rate hikes are now being implemented by the Fed as the boom in some crypto projects has spread throughout the ecosystem. The so-called stablecoin TeraUSD broke from its $1 peg last month after heavy selling pressure, leaving it and its parent sister cryptocurrency, Luna, now nearly worthless. As its developers sought to protect the peg of TeraUSD, they sold off their reserves of bitcoin, weighing its price and other assets.
Crypto investors have recently become concerned about derivatives of the cryptocurrency Ether which is locked in until the Ethereum network transitions to a less energy-intensive model. The so-called Lido-staking Ether has been trading at a discount against Ether lately.
“Crypto has substantial problems. It does not require a macro,” said Noel Acheson, head of market insights at crypto lender Genesis Global Trading, in the context of rising interest rates and inflationary concerns.
Credit: www.Businesshala.com /