More than $200 billion was wiped off the cryptocurrency market over the weekend as Bitcoin, the global crypto leader, shed about 20 percent from its price.
As of this writing, Bitcoin is hovering around $21,000 per coin, which is about one-third of what it was around Christmastime. Nearly every other crypto coin out there plunged by double digits as well.
Bitcoin is now priced around what it was in late 2020 after it soared from under $2,000 per coin in the summer of that year to over $20,000 by the new year. It appears as though Bitcoin and crypto in general have a much longer way to go on their descent back down.
The plunge caused a crypto lending company called Celsius to "pause" all withdrawals for its customers, forcing them to be bag-holders for the time being.
The move is sparking fears of contagion throughout the crypto-sphere, which was believed by many to be a safe haven from the traditional financial markets. It turns out that crypto is tracking Wall Street's plunge, at least for the time being.
Data from CoinMarketCap shows that crypto market capitalization fell below $1 trillion for the first time since February 2021. (Related: Is Bitcoin really a sure store of value?)
Bitcoin's price could go "much lower," warns crypto head
Bearishness in the crypto markets, as CNBC calls it, is partially due to rampant inflation, we are told, as well as the Federal Reserve's continued interest rate hikes.
"Last week, U.S. indices sold off heavily, with the tech-heavy Nasdaq dropping sharply," CNBC's Arjun Kharpal wrote.
"Bitcoin and other cryptocurrencies have tended to correlate with stocks and other risk assets. When these indices fall, crypto drops as well."
Vijay Ayyar, vice president of corporate development and international affairs at the crypto exchange Luno, added that since November of 2021 when the markets as a whole reached all-time highs, sentiments around crypto have "changed drastically."
"We're also potentially looking at a recession given the FED may need to finally tackle the demand side to manage inflation," Ayyar said.
"All this points to the market not completely having bottomed and unless the Fed is able to take a breather, we're probably not going to see bullishness return."
In previous bear markets for crypto, Bitcoin dropped by as much as 80 percent from its previous all-time highs. Right now, it is down about 63 percent from its all-time high, which was hit last November.
"We could see much lower Bitcoin prices over the next month or two," Ayyar warned.
As for Celsius, which claims to have 1.7 million customers, shutting down withdrawals is sure to spark more fear among crypto investors and traders who recognize that the crypto markets are perhaps even more corrupt than Wall Street.
Celsius currently offers yields of up to 18 percent for users who hold crypto on its platform, which the company then loans out to institutions and other investors. The plunge in crypto prices, however, has shaved off a large chunk of the company's assets.
"The company had $11.8 billion worth of assets as of May 17, down from more than $26 billion in October last year, according to its website," Kharpal wrote.
The Celsius situation is definitely adding fuel to the fire. Broadly the markets were already under pressure from inflation concerns and the interest rate hikes. But with crypto, such contagion events could cause outsized declines, given the market is tightly interlinked these days with a variety of inter-connected protocols and businesses."
Mikkel Morch, executive director of the crypto hedge fund ARK36, added that he, too, believes there is more pain ahead for crypto.
More related news coverage about crypto issues can be found at CryptoCult.news.
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