– By Shenal Fernando
The preceding week was one of the worst weeks for cryptocurrencies in history, during which the cryptocurrency market cap dipped below $ 900 million as panicked investors dumped their digital assets following the announcement that Celcius was temporarily halting withdrawals.
The year 2022 has been brutal for the crypto sector which has already seen the collapse of the TerraUSD (UST) and Luna coins, wiping out $ 45 billion overnight in May of this year. Investors started bailing out from this speculative asset class in early 2022 as talks started circulating that the crypto market had topped out considering rising inflation concerns. As a result, the prices of most cryptocurrencies have nosedived from the all-time highs they reached in end 2021.
The turmoil in the market observed during the previous week can be chalked down as the consequence of the perfect storm. On one hand, following the release of the US consumer price index for May which showed that inflation in the US had reached a 40-year high of 8.6%, there was wide-scale anticipation of a 75 basis point benchmark interest rate hike by the Fed which made speculative assets such as crypto less attractive. On the other hand, last Sunday (12), Celsius – one of the more popular crypto staking and lending platforms, announced that all withdrawals, swaps, and transfers between accounts have been paused due to “extreme market conditions”.
There have been rumours circulating for weeks regarding the fact that Celsius was facing a liquidity crisis. Following the announcement, Celsius’s CEL token which was trading at around $ 7 in 2021 fell to a low of 19 cents on Monday (13).
Parallely on Monday, Binance, the largest global crypto exchange platform, paused all Bitcoin withdrawals for three hours due to a stuck transaction causing a backlog.
As news of these developments rippled across the crypto industry, spooked investors began dumping their crypto. Accordingly, Bitcoin (BTC) which is the world’s largest cryptocurrency, saw its price nosedive by over 28% from $ 28,000 on Sunday (12) to an 18-month low of around $ 21,000. BTC is down by over 70% in 2022 from its all-time high of $ 69,000 in November 2021. Similarly, Ether (ETH) which is the second most valuable digital currency, also saw its price fall by over 26% from around $ 1,500 on Sunday to a low of $ 1,100 on Wednesday (15) and is currently down 77% from its all-time high of around $ 4,800 in November 2021.
Many in the crypto industry believe that the market is currently entering a contraction phase known as crypto winter. This is reflected by the fact that the Coinbase Exchange recently announced that it will be laying off 18% of its workforce, in anticipation of another crypto winter. In recent times, other crypto companies such as BlockFi, Crypto.com and Gemini had also announced worker layoffs in anticipation of the crypto winter.
Despite the near-term gloomy outlook for crypto, long-term traders continue to remain unworried, because the very nature of crypto makes lows in a crypto bear market more extreme, compared to more stable assets such as stocks. The flipside is that the highs of crypto are far higher than stocks.
Speaking to CNN Business, Blockworks Co-Founder Jason Yanowitz stated that crypto bear markets usually draw down between 85% and 90%. In the last decade, two prolonged crypto downturns saw Bitcoin lose more than 80% of its value, but the coin bounced back and then some.
Bloody week for crypto
19 Jun 2022
Bloody week for crypto
19 Jun 2022