Bitcoin’s (BTC) price was just under the symbolic level of $20,000 in early London trading hours – roughly the peak of its charge to its previous record in 2017 – amid weak macroeconomic sentiment and contagion risk from within the cryptocurrency market.
The crypto industry was on edge today as the world’s biggest cryptocurrency struggled to stay above a key level, with investors fearing that problems at major crypto players could unleash a wider market shakeout.
Ether at one point shed 7.8% but held above $1,000. Altcoins like Solana, Cardano and Dogecoin declined.
Bitcoin had dropped on Saturday to as low as $17,592.78, falling below $20,000 for the first time since December 2020. It has lost almost 60% of its value this year and 37% this month alone in the cryptocurrency sector’s latest meltdown.
Bitcoin’s fall follows problems at several major industry players. Further declines, market players said, could have a knock-on effect as other crypto investors are forced to sell their holdings to meet margin calls and cover losses.
The pattern of swings suggest investor sentiment remains highly fragile as the US Federal Reserve and other central banks go full throttle to fight inflation with interest-rate hikes that drain liquidity from markets.
The T3 Bitcoin Volatility Index, a measure of the token’s expected 30-day volatility, has jumped back to the highs of mid-May, when the collapse of the TerraUSD stablecoin rocked markets.
“A toxic mix of bad news cycles and higher interest rates has hurt the crypto market and we can anticipate more volatility in the upcoming weeks,” said Feroze Medora, director of APAC trading at Cameron and Tyler Winklevoss’s Gemini crypto platform, in a note on Monday.
Crypto hedge fund Three Arrows Capital is exploring options including the sale of assets and a bailout by another firm, its founders told the Wall Street Journal in a story published Friday, the same day Asia-focused crypto lender Babel Finance said it would suspend withdrawals.
US-based lender Celsius Network this month said it would suspend customer withdrawals. In a blog on Monday, Celsius said it would continue working with regulators and officials, but that it would pause its customer Q&A sessions.
“There is a lot of credit being withdrawn from the system and if lenders have to absorb losses from Celsius and Three Arrows, they will reduce the size of their future loan books which means that the entire amount of credit available in the crypto ecosystem is much reduced,” said Adam Farthing, chief risk office for Japan at crypto liquidity provider B2C2.
“It feels very like 2008 to me in terms of how there could be a domino effect of bankruptcies and liquidations,” Farthing said.
Smaller tokens, which usually move in tandem with bitcoin, were also hurt. No.2 token ether was at $1,0752, having dipped below its own symbolic level of $1,000 over the weekend.
The fall in crypto markets has coincided with a slide for equities, as US stocks suffered their biggest weekly percentage decline in two years on fears of rising interest rates and the growing likelihood of recession.
Bitcoin’s moves have tended to follow a similar pattern to other risk assets such as tech stocks.
Adding to the uncertainty is the intense pressure on DeFi applications. Their popularity as a source of high yields soared when Covid-era stimulus drove a record-breaking boom in cryptocurrency.
The overall cryptocurrency market capitalisation is roughly $877 billion, as per price site Coinmarketcap, down from a peak of $2.9 trillion in November last year.
A fall in stablecoins – a type of crypto designed to hold a steady value – is also suggesting investors are pulling money from the market as a whole.
With agency inputs