Crypto investors and executives are bracing themselves for further pain after the price of bitcoin tumbled over the weekend, worsening the credit crunch hitting the industry. Bitcoin, the world’s most actively traded cryptocurrency, fell as low as $17,628 on Saturday before rebounding, according to data from CryptoCompare.
Investors
and executives have been anxiously watching the token’s price, fearing a drop
below $20,000 may prompt forced liquidations of large leveraged bets. Bitcoin,
which acts as the main benchmark for the broader cryptocurrency market, has
come under acute pressure in recent months as central banks and governments
shifted from a prolonged period of ultra-low interest rates to a fight against
surging inflation. “This is a dark winter ahead for crypto as the era of free
money comes to an end with this weekend another brutal sell-off across the
board. Risk assets are all getting thrown out the window,” said Dan Ives,
managing director and senior equity analyst at Wedbush Securities.
The hunt for
returns has shifted as big central banks, led by the US Federal Reserve, boost
borrowing costs and bring to an end the pandemic-era efforts to stimulate
economic growth. Traditional financial markets have been rattled this month as
traders fretted that the aggressive action could snarl global growth or even
trigger a recession. Last week was the worst for global equities since the
darkest days of the pandemic in March 2020.
Bitcoin has
fallen about 70 per cent from its all-time high of nearly $70,000 last November
to just above $20,000 as of Sunday afternoon eastern time. Ether, another
actively traded token, dropped as low as $900 over the weekend, meaning its
price has fallen by four-fifths since its peak late last year. That has
contributed to an escalating credit crunch in the digital asset industry that
threatens to engulf many of its major actors. In the last month, so-called
stablecoin terra and its sister token luna — popular with crypto traders
seeking ultra-high yields — collapsed, two lending platforms prevented
depositors from withdrawing their assets, and crypto hedge fund Three Arrows
failed to meet margin calls in the wake of lender demands.
The
weekend’s sell-off prompted more than $600mn worth of leveraged positions to be
liquidated, according to data from Coinglass, as traders who had borrowed money
to take supercharged market bets failed to post more collateral and were wiped
out. Analysts expect these losses will put further pressure on traders and
lenders’ balance sheets, because many users took out loans against their crypto
asset holdings.
However, dogecoin, the “joke” cryptocurrency, rose after Elon Musk, chief
executive of electric car maker Tesla, posted a tweet of his continued support
for the token. Nayib Bukele, the president of El Salvador and a bitcoin
champion, told investors on Sunday to “stop looking at the graph and enjoy
life”. Bukele, who spearheaded El Salvador’s adoption of bitcoin as legal
tender last year, has dismissed warnings from the IMF over the policy. The
troubles in the crypto market have rippled back into corners of the mainstream
financial market. US-listed MicroStrategy, a tech group which is a major
investor in bitcoin, has tumbled almost 70 per cent this year. Shares in crypto
miners, which earn fees for validating crypto transactions, have also dropped
sharply. Crypto exchanges — platforms that sit directly in the teeth of the
unrelenting market crash — have been forced to reverse hiring plans. The list
includes Coinbase, Gemini, Mercado Bitcoin — a popular exchange in South
America — and Celsius rival lender BlockFi, which cut 20 per cent of staff this
month.
Source:
ft.com