Halfway through 2022, we see cryptocurrencies hitting their lowest in years, not only in value but in terms of the trust that investors have in them. The crypto market cap is currently below $1 trillion, down from $3 trillion at its peak in November.
The sell-off is a result of investors selling their risk-on assets due to unfavorable macroeconomic news and talks of an impending recession. Rising interest rates to counter inflation, efforts that have yet to bear fruits, are not helping matters. But is there an element of mistrust creeping in?
The bear showing his teeth
Inflation-led US stock demolition by over 20% of their most recent high, showing prices rising 8.6% in May, announced the arrival of a bear market, and officially ended a bull run that began mid-March 2020.
The markets got a short boost from a three-quarter-point rate hike in June. Bitcoin was at $23,000. As of writing, it traded at 20,744, closer to the 21,000+ mark it registered in the last week or so.
Cryptos catching heat from Celsius, other lenders
Celsius, a popular crypto staking and lending platform, experienced a liquidity crunch during the crypto crash. Celsius offers users a yield of up to 18.63% on their deposits using the CEL token.
The token dropped from over $7 to about 33 cents in the last year, dropping another 50% in the past weeks.
Meanwhile, the company’s $26 billion in client funds has more than halved since October.
On June 13, Celsius rattled the crypto investors’ market when it released a memo saying all withdrawals, swaps, and transfers between accounts had been paused due to “extreme market conditions.”
“We are taking this action today to put Celsius in a better position to honor, over time, its withdrawal obligations,” the memo said, effectively locking up around $12 billion in assets under management.
The news spread like wildfire and talks of insolvency began to make their way through the digital grapevine. The news was soon followed on the same day with Binance pausing bitcoin withdrawals claiming transactions were causing a backlog, an issue which cleared 3 hours later.
Other than the Celsius Network, digital asset markets felt the weight of financial struggles at crypto lenders, including BlockFi, Voyager Digital, and Three Arrows Capital.
At the time, observers were tracking news of these lenders’ balance sheets, and if negative, more liquidation of crypto assets would have followed.
BlockFi recently announced that it secured a $250 million revolving credit facility from crypto exchange FTX.
But others did not do so well. Three Arrows Capital has just defaulted on a loan worth more than $670 million. Meanwhile,
Digital asset brokerage Voyager Digital issued a notice this Monday, stating that the fund failed to repay a loan of $350 million in the US dollar-pegged stablecoin, USDC, and another 15,250 bitcoin, worth about $323 million prices.
Bitcoin is steady for now
Bitcoin had a steady last weekend of trading in a range of $20,000 to $21,800, but over the last few weeks, it actually dropped to a low of $18,001 on June 18.
Bitcoin is up 3.8% over the last seven days but is down about 27% over the last month.
Still, Digital asset investment products saw a record of $423 million in net outflows last week alone, mostly focused on Bitcoin, data from CoinShares said.
Ethereum, on the other hand, saw net positive inflows of $11 million, ending a streak of 11 consecutive weeks of net negatives.
Bitcoin at $10k?
Prior to 2022, in previous bear markets, the price of BTC fell by roughly 85% from its top to the eventual bottom. According to Delphi Digital, if the same is to happen today to Bitcoin, it would mean “a low just above $10,000, another 50% drawdown for current levels.”
That level would likely signal a final capitulation that has historically marked the end of a bear market and the start of the next cycle.
According to Delphi Digital: “We may need to see a bit more pain before sentiment really bottoms out.”
Rising interest rates tend to be followed by market corrections, and with the Fed having no recourse but to hike interest rates, Bitcoin’s current correction may not be the last one.
