Bitcoin plunged to about $17,749 and ether fell to about $897 at around 4:15 E.T. on Saturday afternoon, as the sell-off in the crypto market accelerates. The world’s two most popular cryptocurrencies are down more than 35% in the past week, as both breach symbolic price barriers.
Bitcoin bounced back to around $18,955
and ether was trading at about $995 just after 8 p.m. ET.
The carnage in the crypto market is
partly caused by pressure from macroeconomic forces, including spiraling
inflation and a succession
of Fed rate hikes. We have also seen these blue chip cryptos track
equities lower. It doesn’t help that crypto
firms are laying off large swaths of employees, and some of the most
popular names in the industry are facing
solvency meltdowns.
Bitcoin peaked at $68,789.63 in
November. Ether peaked at $4,891.70 that same month. Bitcoin last traded this
low around December 2020.
Here’s how we got here.
Monday
The
week started with crypto prices plummeting, and bitcoin falling as much as 17%
at one point in the day. It seemed like the crypto winter was here.
In the chaos, Celsius, a major crypto staking
and lending firm, shocked the market when it announced that all
withdrawals, swaps and transfers between accounts have been paused due to
“extreme market conditions.” In a memo addressed to the Celsius
Community, the platform also said the move was designed to “stabilize liquidity
and operations.”
Celsius
effectively locked up its
$12 billion in crypto assets under management, raising concerns
about the platform’s solvency. The news rippled across the crypto industry,
reminding some of what happened in May when a failed
U.S. dollar-pegged stablecoin project lost $60 billion in value and
dragged the wider crypto industry down with it.
Celsius was known for offering users a yield
of up
to 18.63% on their deposits. It’s like a product a bank would
offer, except with none of the regulatory safeguards.
Those crazy high yields were what eventually
came under scrutiny.
“This risk certainly seems like it’s just the
beginning,” said
John Todaro, Needham’s vice president of crypto assets and
blockchain research.
“What I would say is on the decentralized side
— a lot of these DeFi protocols, a lot of those positions are over
collateralized, so you shouldn’t quite see the underfunding situation that
could happen with centralized borrowers and lenders. But that being said, you
could still see a lot of liquidations with that collateral being sold off on
DeFi protocols,” continued Todaro.
Tuesday
Crypto
markets appeared to stabilize on Tuesday, with bitcoin hovering at around
$22,000 and ether at around $1,100.
Investors were assessing the fallout of
Celsius, and meanwhile, another crypto firm joined a growing list of companies
cutting staff to try to shore up profits.
Coinbase announced it was laying
off nearly a fifth of its workforce due to crypto volatility.
The company had previously cut spending and even rescinded job offers in the
hopes of stabilizing its business.
“We had the recent inflation report that came
out that I think surprised many folks,” explained President and Chief Operating
Officer Emilie Choi.
“We’ve had Jamie Dimon and others talk about
an upcoming economic hurricane and so given what’s happening in the economy, it
feels like the most prudent thing to do right now,” continued Choi.
Crypto companies across the board are looking
for ways to cut costs, as investors rotate out of the riskiest assets, pulling
down trading volumes.
Crypto.com recently announced a staff reduction of 260 people,
as did Gemini, which said it would lay
off 10% of its workforce — a first for the U.S.-based
cryptocurrency exchange and custodian.
Wednesday
MicroStrategy CEO Michael Saylor appeared on CNBC
Wednesday morning to discuss concerns around his firm, which has made a $4
billion bet on bitcoin. Saylor has said the company
doubles as the first and only bitcoin spot exchange-traded fund in the U.S.,
so investing in MicroStrategy is the closest you’ll get to a bitcoin spot ETF.
MicroStrategy
has used company debt to purchase bitcoin, and in March, Saylor
decided to take another step toward normalizing bitcoin-backed finance when he borrowed $205 million using his bitcoin as collateral —
to then buy more of the cryptocurrency.
“We have $5 billion in collateral. We borrowed
$200 million. So I’m not telling people to go out and take a highly leveraged
loan. What I am doing, I think, is doing my best to lead the way and to
normalize the bitcoin-backed financing industry,” said
Saylor, who added that publicly traded crypto miner Marathon Digital also took out a credit line with Silvergate Bank.
As bitcoin prices tanked this week, investors
worried the company would be asked to put up more collateral for its loan, but
Saylor said the fears were overblown.
“The margin call is much ado about nothing,” Saylor
told CNBC earlier this week. “It’s just made me Twitter famous, so I
appreciate that...We feel like we have a fortress balance sheet, we’re
comfortable, and the margin loan is well managed.”
Then on Wednesday afternoon, the Federal
Reserve raised its benchmark interest rates three-quarters of a percentage
point in its most aggressive hike since 1994. The Fed said the
move was made in an effort to curb sky-high inflation.
Crypto prices initially rallied on the news as
investors hoped we could avoid a recession, but that rally was short-lived.
Thursday
We
were back in the red on Thursday. Bitcoin fell to around $20,000, to prices it
hadn’t seen since the end of 2020.
The losses were closely tied to a sell-off on
Wall Street, in which the Dow fell 700 points to its lowest level in more than
a year.
It appears that investors can’t shake the
fears of recession, and some say it could take time for cryptocurrencies to
recover from the sell-off in riskier assets.
“I think that we’re in a long drawdown period
here,” Jill Gunter, Espresso Systems co-founder & chief strategy officer, told
CNBC’s Squawk on the Street.
“I think that we’ve taken the elevator down,
and I think that we, as an industry, are going to have to take the stairs back
up and climb out by building real utility,” she said.
Gunter said that, in many ways, what we’re
seeing is a “healthy washout.”
“One doesn’t want to, as a builder, as an
investor for the long-term... be in a market where it’s being driven by just
short-term price action, by speculation, as, let’s be honest, the crypto market
has been largely over the last couple of years,” continued Gunter.
Friday
into Saturday
Carnage
in the crypto markets shows no signs of slowing down, as bitcoin and ether
continue their sell-off at a rapid clip on Saturday afternoon.
This comes as crypto hedge funds and
businesses face growing questions about insolvency.
“We had financial instability because
of this opaque leverage, you just couldn’t tell where all these risks were
building up,” Paxos CEO & Co-Founder Charles Cascarilla told
CNBC.
“In some ways, this is just an age old
story. You’re borrowing short and lending long. And I think it’s really
unfortunate that people lost money, and I think it will, in some ways, set back
the space, because you will lose some early adopters or some of the people who
just came in new to the space,” continued Cascarilla.
But Cascarilla also says that
investors are still looking for quality crypto investments.
“The fundamental technology here and
the adoption curve that we see, the institutions that are coming in, how you
can get your financial system to operate at the speed of the internet, those
are things that need to happen,” he said.
Source:CNBC