Bitcoin fell below $23,000 on Monday, hitting its lowest level since December 2020, as investors dump the crypto amid a broader sell-off in risky assets.
Meanwhile, a crypto credit company called Celsius has suspended withdrawals for its clients, sparking fears of contagion in the wider market.
The world’s largest cryptocurrency bitcoin has fallen below the $23,000 mark, according to data from CoinDesk. At one point, bitcoin fell around 17% to trade around $22,764. Some of those losses were later recouped, and by 4 p.m. Bitcoin on Wall Street was at $23,351, a 15% loss.
Over the weekend and up to Monday morning, over $200 billion has been wiped from the entire cryptocurrency market. The cryptocurrency’s market cap fell below $1 trillion on Monday for the first time since February 2021, according to data from CoinMarketCap.
Macroeconomic factors are contributing to the decline in crypto markets, with runaway inflation continuing and the US Federal Reserve expected to raise interest rates this week to control rising prices.
Last week, US indices sold off sharply, with the tech-heavy Nasdaq falling sharply. Bitcoin and other cryptocurrencies have tended to be correlated with stocks and other risky assets. When these indexes fall, the crypto also falls.
“Since November 2021, sentiment has changed dramatically given the Fed’s rate hikes and inflation management. We are also potentially eyeing a recession given that the Fed may finally have to tackle the side of demand to manage inflation,” Vijay Ayyar, vice president of business development and international at Luno Exchange, told CNBC.
“All of this indicates that the market hasn’t completely bottomed out and unless the Fed is able to breathe a little breather, we are unlikely to see a return to the upside.”
Ayyar noted that in previous bear markets, bitcoin has fallen around 80% from its last all-time high. Currently, it is down about 63% from its last all-time high reached in November.
“We could see much lower bitcoin prices over the next two months,” Ayyar said.
Celsius “adds fuel to the fire”
The crypto market has also been on edge since mid-May, when the so-called algorithmic stablecoin terraUSD, or UST, and its sister cryptocurrency luna crashed.
Now the market is concerned about a crypto credit company called Celsius which said on Monday that it was suspending all withdrawals, trades and transfers between accounts “due to extreme market conditions”.
Celsius, which claims to have 1.7 million customers, advertises to its users that they can earn an 18% return through the platform. Users deposit their crypto at Celsius. This crypto is then loaned out to institutions and other investors. Users then get a return from the revenue generated by Celsius.
But the selloff in the crypto market hurt Celsius. The company had assets worth $11.8 billion as of May 17, up from more than $26 billion in October last year, according to its website.
CEL, which is Celsius’ own coin, is down more than 50% in the last 24 hours, according to CoinGecko. Investors are worried about a wider contagion in the crypto market.
“The Celsius situation is definitely adding fuel to the fire,” Ayyar said.
“Globally, markets were already under pressure from inflation concerns and interest rate hikes, but with crypto, such contagion events could lead to outsized declines, given how tightly bound the market is these days. to a variety of interconnected protocols and companies.”
Mikkel Morch, executive director of crypto hedge fund ARK36, suggested there could be more pain ahead.
“Medium term, everyone is really bracing for more downside,” he said. “Bear markets have a way of exposing previously hidden weaknesses and over-leveraged projects, so it’s possible we’ll see events like the Terra ecosystem unfolding over the past month repeat itself.”
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Post expires at 4:48am on Saturday June 25th, 2022