On Saturday afternoon, Bitcoin dropped to $18,248 and ether dropped to $944 as sales in the crypto market accelerated. The world’s two most popular cryptocurrencies have fallen more than 35% in the past week as both have overcome symbolic price barriers.
The carnage in the crypto market is in part related to the pressure from macroeconomic forces, including rising inflation and repeated Fed rate hikes. We’ve also seen these blue-chip cryptos track stocks lower. It doesn’t help crypto firms lay off huge numbers of employees, and some of the most popular names in the industry are facing solvency meltdowns.
Here’s how we got here.
Celsius CEO Alex Mashinsky.
Piaras and the Middle East | Sportsfile for Web Summit | Getty Pictures
The week started with crypto prices falling, with bitcoin dropping as low as 17% at one point in the day. Looks like crypto winter was here.
In the chaos, Celsius, a major cryptocurrency deposit and lending company, shocked the market when it announced that all withdrawals, swaps and transfers between accounts were paused due to “extreme market conditions”. In a note to the Celsius Community, the platform also said the move was designed to “stabilize liquidity and operations.”
Celsius effectively locked $12 billion in crypto assets under management, raising concerns about the platform’s solvency. The news made waves in the crypto industry, recalling what happened in May when a failed US dollar-pegged stablecoin project lost $60 billion in value and dragged the wider crypto industry with it.
Celsius was known for giving users up to 18.63% returns on their deposits. Without any of the regulatory safeguards, like a product a bank would offer.
These crazy high yields were what was finally put under scrutiny.
“This risk certainly seems like just the beginning,” said John Todaro, Needham’s vice president of crypto-assets and blockchain research.
“What I can say is on the decentralized side – many of these DeFi protocols, many of these positions are over-collateralised, so you shouldn’t really see the underfunding situation that can happen with centralized borrowers and lenders. But that being said, you can still see a lot of liquidations with this collateral being sold on DeFi protocols. ,” Todaro continued.
People watch the logo of Coinbase Global Inc, the largest US cryptocurrency exchange, displayed on the Nasdaq MarketSite jumbotron in Times Square in New York, USA on April 14, 2021.
Shannon Stapleton | Reuters
Crypto markets stabilized on Tuesday as Bitcoin hovered around $22,000 and ether hovered around $1,100.
Investors were weighing in Celsius’ decline, and meanwhile, another crypto firm has joined the growing list of companies that are cutting staff to try to boost their profits.
Coinbase announced that it is laying off about a fifth of its workforce due to crypto volatility. The company had previously cut spending and even canceled job offers in hopes of stabilizing its business.
“We got the latest inflation report, which I think has surprised a lot of people,” said Emilie Choi, President and Executive Vice President of Operations.
“We’ve had Jamie Dimon and others talk about an impending economic hurricane, and so it seems like the most prudent thing to do right now, given what’s going on in the economy,” Choi continued.
Crypto companies across the board are looking for ways to cut costs as investors turn from the riskiest assets to drive trading volumes down.
recently crypto.com Announced a staff reduction of 260 peopleAs did Gemini, which said it would lay off 10% of its workforce, a first for the US-based cryptocurrency exchange and custodian.
MicroStrategy’s president and CEO, Michael Saylor, got into bitcoin in 2020 when he decided to add cryptocurrency to MicroStrategy’s balance sheet as part of an unorthodox treasury management strategy.
Eva Marie Uzcategui | Bloomberg | Getty Pictures
MicroStrategy CEO Michael Saylor took to CNBC on Wednesday morning to discuss concerns about his firm, which is betting $4 billion in Bitcoin. Saylor said the company doubles as the first and only bitcoin spot exchange-traded fund in the US, so investing in MicroStrategy is the closest it comes to a bitcoin spot ETF.
MicroStrategy used corporate debt to buy bitcoin, and in March Saylor decided to take another step toward normalizing bitcoin-backed finance when it borrowed $205 million using bitcoin as collateral – then bought more of the cryptocurrency.
“We have $5 billion in collateral. We borrowed $200 million. So I don’t tell people to go out and get a highly leveraged loan. What I do is, I guess, do my best to lead and normalize the Bitcoin-backed finance industry,” Saylor said. He added that public crypto miner Marathon Digital has also set up a credit line with Silvergate Bank.
Investors worried that the company would be asked to place more collateral on its loan as bitcoin prices fell this week, but Saylor said the fears were overblown.
“The margin call is so much ado about nothing,” Saylor told CNBC earlier this week. “He made me famous on Twitter, so I appreciate that…We feel we have a strong balance sheet, we’re comfortable, and margin credit is well managed.”
Then Wednesday afternoon, the Federal Reserve increased benchmark interest rates by three-quarters in its most aggressive increase since 1994. The Fed said the move was made to rein in very high inflation.
Crypto prices initially rose as investors hoped we could avoid a recession, but that rally was short-lived.
Bitcoin and other cryptocurrencies are in free fall.
Dan Kitwood | Getty Pictures
We turned red on Thursday. Bitcoin has dropped to around $20,000 at prices it hasn’t seen since the end of 2020.
The losses were closely tied to a sell-off on Wall Street, where the Dow fell 700 points to its lowest level in more than a year.
Investors seem to be unable to shake their recession fears, and some say it may take time for cryptocurrencies to recover from selling in riskier assets.
“I think we’re in a long retreat here,” said Jill Gunter, Espresso Systems co-founder and chief strategy officer. He told CNBC’s Squawk on the Street.
“I think we took the elevator down, and I think as an industry, we need to take the stairs back and climb up by building a real building,” he said.
In many ways, what we’re seeing is a “healthy cleanse,” Gunter said.
“As a builder, as a long-term investor, not only does one want to be in a market driven by short-term price action, speculation, let’s be honest, the crypto market has been massively buoyant over the past few years,” Gunter continued.
from friday to saturday
Bitcoin and other cryptocurrencies fell sharply as investors abandoned risky assets. A crypto lending firm called Celsius is pausing withdrawals for its clients, triggering fears of contagion to the wider market.
Nurfoto | Nurfoto | Getty Pictures
As Bitcoin and ether continue their fast selling on Saturday afternoon, the carnage in the crypto markets shows no signs of slowing down.
This comes as crypto hedge funds and businesses face growing questions about bankruptcy.
Charles Cascarilla, CEO and Co-Founder of Paxos, said: “We’ve had financial instability due to this opaque leverage, you couldn’t understand where all these risks are piling up.” He told CNBC.
“In some ways, it’s just an old story. You borrow short and you lend long. And I think it’s really unfortunate that people lose money, and I think that, in a way, will regress the field because you’re going to lose some early adopters or some newcomers to space. ,” Cascarilla continued.
However, Cascarilla also says that investors are still looking for quality crypto investments.
“The underlying technology here and the adoption curve we’re seeing, the institutions that are coming in, how you can run your financial system at internet speed, these are the things that need to happen,” he said.