Bitcoin plunged to $18,248 and Ether fell to $944 mid-afternoon Saturday as selling in the crypto market accelerated. The world’s two most popular cryptocurrencies have fallen over 35% in the past week, with both breaching token price barriers.
The carnage in the crypto market is partly related to pressure from macroeconomic forces, including spiraling inflation and a succession of Fed rate hikes. We have also seen these top cryptos trail stocks lower. It doesn’t help that crypto firms are laying off large swathes 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 Ó Midheach | Sportsfile for the Web Summit | Getty Images
The week started with crypto prices plummeting and bitcoin dropping as much as 17% at some point during the day. It seemed like the crypto winter was here.
In the chaos, Celsius, a major crypto staking and lending company, shocked the market by announcing that all withdrawals, trades and transfers between accounts had been suspended due to “extreme market conditions”. In a note to the Celsius community, the platform also said the move was to “stabilize liquidity and operations.”
Celsius has effectively locked up its $12 billion in crypto assets under management, raising concerns about the platform’s solvency. The news spread through the crypto industry, reminding some of what happened in May, when a US dollar-pegged stablecoin project lost $60 billion and dragged the industry down. cryptography as a whole.
Celsius was known to offer users a return of up to 18.63% on their deposits. It’s like a product that a bank would offer, except that there are no regulatory guarantees.
These crazy high yields have finally come under scrutiny.
“That risk certainly seems like it’s just the beginning,” said John Todaro, Needham’s vice president for crypto assets and blockchain research.
“What I would say is on the decentralized side – a lot of these DeFi protocols, a lot of these positions are over-collateralized, so you shouldn’t quite see the underfunded situation that might be happening with borrowers and centralized lenders. But that being said, you could 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 U.S. cryptocurrency exchange, displayed on the Nasdaq MarketSite jumbotron in Times Square in New York, U.S., April 14, 2021.
Shannon Stapleton | Reuters
Crypto markets appeared to stabilize on Tuesday, with bitcoin hovering around $22,000 and ether around $1,100.
Investors were weighing the fallout from Celsius, and meanwhile, another crypto firm joined a growing list of companies cutting staff in an attempt to shore up profits.
Coinbase announced that it was laying off nearly 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 had the recent inflation report that came out which I think surprised a lot of people,” said president and chief operating officer Emilie Choi.
“We’ve heard Jamie Dimon and others talking about an economic hurricane coming and so given what’s going on in the economy, it seems like the most prudent thing to do right now,” Choi continued. .
Crypto companies across the board are looking for ways to cut costs, as investors turn away from riskier assets, reducing trading volumes.
Crypto.com recently announced a staff reduction of 260 peopleso did Gemini, which said it would lay off 10% of its workforce – a first for the US-based cryptocurrency exchange and custodian.
Michael Saylor, President and CEO of MicroStrategy, first got into bitcoin in 2020, when he decided to start adding the cryptocurrency to MicroStrategy’s balance sheet as part of a strategy. unorthodox cash management.
Eva Marie Uzcategui | Bloomberg | Getty Images
MicroStrategy CEO Michael Saylor appeared on CNBC Wednesday morning to discuss concerns about his company, which made a $4 billion bet on bitcoin. Saylor said the company is also the first and only bitcoin cash exchange-traded fund in the United States, so investing in MicroStrategy is the closest thing to a bitcoin cash ETF.
MicroStrategy used the company’s debt to buy bitcoin, and in March Saylor decided to take another step towards normalizing bitcoin-backed financing when he borrowed $205 million using his bitcoin as collateral – to then buy more cryptocurrency.
“We have $5 billion as collateral. We’ve borrowed $200 million. So I’m not telling people to go out and get a highly leveraged loan. What I’m doing, I think, is do my best to pave the way and standardize the bitcoin-backed funding industry,” said Saylor, who added that publicly traded crypto miner Marathon Digital has also taken out a line of credit with Silvergate Bank. .
As bitcoin prices fell this week, investors feared the company might be asked to provide more collateral for its loan, but Saylor said fears were overblown.
“Margin call is much ado about nothing,” Saylor told CNBC earlier this week. “It just made me famous on Twitter, so I appreciate that… We feel like we have a fortress balance sheet, we’re comfortable and the margin lending is well run.”
Then on Wednesday afternoon, the Federal Reserve raised its benchmark interest rates by 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 spiraling inflation.
Crypto prices initially rose after the news as investors hoped we could avoid a recession, but that rally was short-lived.
Bitcoin and other cryptocurrencies are in freefall.
Dan Kitwood | Getty Images
We were back in the red on Thursday. Bitcoin fell to around $20,000, prices it hadn’t seen since late 2020.
The losses were closely linked to a sell-off on Wall Street, in which the Dow fell 700 points to its lowest level in more than a year.
It looks like investors can’t shake off recession fears, and some say it could take time for cryptocurrencies to recover from the sell-off of riskier assets.
“I think we’re in a long downturn here,” said Jill Gunter, co-founder and chief strategy officer of Espresso Systems, told CNBC’s Squawk on the Street.
“I think we’ve taken the elevator down, and I think we as an industry are going to have to go back up the stairs and out building real utility,” she said.
Gunter said that in many ways what we’re seeing is “healthy washing.”
“You don’t want, as a builder, as a long-term investor…to be in a market where it’s driven only by short-term price action, by speculation, because, let’s be honest, crypto market has been largely over the past couple of years,” Gunter continued.
Friday to Saturday
Bitcoin and other cryptocurrencies have fallen sharply as investors dump risky assets. A crypto credit company called Celsius is suspending withdrawals for its customers, sparking fears of contagion in the wider market.
Nurphoto | Nurphoto | Getty Images
The carnage in the crypto markets shows no signs of abating, as bitcoin and ether continued selling at a rapid pace on Saturday afternoon.
This comes as crypto hedge funds and companies face growing insolvency questions.
“We had financial instability because of this opaque leverage, you just couldn’t tell where all this risk was piling up,” said Charles Cascarilla, CEO and co-founder of Paxos. told CNBC.
“In a way, it’s just an age-old story. You borrow short and lend long. And I think it’s really unfortunate that people are losing money, and I think it will, in some ways, shrink the space, because you’ll lose some early adopters or some of the people who are just coming into the space,” Cascarilla continued.
But Cascarilla also says that investors are still looking for quality crypto investments.
“The fundamental technology here and the adoption curve that we’re seeing, the institutions that are coming in, how you can run your financial system at internet speed, these are things that need to happen,” he said. declared.