The price of bitcoin and other cryptocurrencies slumped again after a trading platform reportedly halted withdrawals from their platforms. According to data site CoinMarketCap, the value of the cryptocurrency market fell below $1 trillion on June 13 for the first time since January 2021, reaching as low as $926 billion. The global cryptocurrency market peaked at $2.9 trillion in November 2021, but it has tumbled this year, losing $1 trillion in value in the last two months alone, the report showed. Here are some of the latest updates on the ‘new low’.
What prompted the ‘new low’?
On Sunday, cryptocurrency lending platform Celsius Network announced that it was pausing all withdrawals and transfers between accounts due to “extreme market conditions”, in the latest sign of pressure in the crypto industry. Celsius, with roughly 1.7 million customers and more than $10 billion in assets, gave no indication in its announcement when it would allow users to access their funds.
In exchange for customers’ deposits, the company pays out extremely generous yields, upwards of 19% on some accounts. Celsius takes those deposits and lends them out to generate a return. However, lending platforms such as Celsius have come under scrutiny recently because they offer yields that normal markets could not support, and critics have called them effectively Ponzi schemes.
What happened to Bitcoin, Ether et al.?
Bitcoin plunged to an 18-month low, falling below $23,000. The most valuable cryptocurrency tumbled by 15% in the past 24 hours, while Ethereum, which is second to bitcoin, fell 17%, as per various reports. Other cryptocurrency coins including Cardano, Dogecoin, Polkadot and Avalanche were also in the red.
Binance also hit the pause button for some time on Monday. The leading crypto exchange halted bitcoin withdrawals for over three hours “due to a stuck transaction causing a backlog.”
What could be the implications?
This is the second notable collapse in the cryptocurrency market in less than two months. The stablecoin Terra, and its token Luna, offered similar yields on customer deposits like Celcius imploded in early May, erasing tens of billions of dollars in a matter of hours.
Just like Terra, Celsius had sold itself as a safe place for cryptocurrency holders to deposit their funds. Even while Celsius was failing, the company’s website advertised that users can “access your coins whenever, keep them safe forever.”
Until recently Stablecoins have been seen as relatively safe, because they’re supposed to be backed by hard assets, such as a currency or gold. The move surprised investors and depositors. In online chats, they questioned why their investments weren’t protected. It’s unclear whether Celsius depositors will get all their funds back.
Layoffs ahead of ‘crypto winter’?
Not just the market clash, the crypto market is bracing for tough times ahead in terms of manpower too.
Seeing a drop in crypto trading volumes and massive losses many crypto exchanges are cutting down on staff. Earlier this month, crypto-exchange Gemini said that it would layoff 10% of its workforce and warned that the industry is in a “contraction phase” known as “crypto winter.”
Following suit, Coinbase, the world’s largest crypto exchange, also published a blog post on June 3, 2022 announcing a hiring hiatus for the “foreseeable future”. The Exchange said, it will assess the ongoing situation and figure out the path ahead.
Peter Thiel-backed start-up BlockFi has joined a growing list of crypto companies slashing costs by cutting jobs. The company announced it would be reducing headcount by about 20%. CEO Zac Prince said in a tweet that BlockFi has been impacted by the “dramatic shift in macroeconomic conditions,” which has had a “negative impact” on growth.
However, the downturn has not affected all exchanges and crypto companies. Sam Bankman-Fried's FTX – the second-largest cryptocurrency exchange – is reportedly looking to invest in Bengaluru-based gaming startup Mobile Premier League (MPL). Also, Fidelity Digital Assets, a subsidiary of Fidelity Investments, is looking to its double headcount this year to cater to the growing demand of crypto investors.
Will crypto rise again in 2022 after crash?
This is perhaps the biggest question haunting crypto investors now. While many have cited concerns that some of the recent turbulence will continue to deepen mistrust of cryptocurrencies and the platforms that support them.
Accounting firm PWC’s 4th Annual Global Crypto Hedge Fund Report found that the majority of crypto fund managers surveyed believe that the price of bitcoin would be between $75,000 and $100,000 by the end of this year, despite an overall ‘bearish’ crypto market.
Even with the tremendous volatility in the sector, there are many are investing in crypto and more specialist crypto funds being created as the digital asset class gains acceptance. Of traditional hedge funds surveyed, 38% are currently investing in digital assets, compared to 21% a year ago.
“There will continue to be volatility, but the market is maturing and with that is coming from both crypto-focused hedge funds and also more traditional funds entering the crypto space,” John Garvey, Global Financial Services Leader, PwC United States, said.
Meanwhile, investors may continue to stay away from riskier assets, which are reflecting in the stock markets as well.