And they all come tumbling down.
The congratulations and celebrations from crypto’s biggest and latest shindig had barely died down and its markets took a turn for the worst Monday morning.
Bitcoin price, which has been on a steady decline since last November, crashed below $25,000 this morning. As of this writing, it is trading at $23,557.23, a drop of roughly 15% from its price a day ago. The cryptocurrency last fell below the $25,000 mark in December 2020 before gearing up for a phenomenal run that culminated in a price record last November.
Cryptocurrency markets also followed suit and the price of major cryptocurrencies followed bitcoin’s plunge. According to reports, the latest crash in crypto markets wiped off $100 billion. The overall market cap of cryptocurrencies was above $2 trillion at the start of this year. It slipped below $1 trillion, to $971 billion, this morning.
A Turbulent Market
Bitcoin flourished in the laissez faire environment of the pandemic, when fundamentals took a backseat and capital flowed into risky corners of the market. But it is down by more than 70% from its peak last November.
In the past, a crash in bitcoin price has been an opportunity for investors to pile into other coins. But the plummeting value of Bitcoin has pulled the prices of other cryptocurrencies into its orbit and their price movements has mimicked that of the original cryptocurrency.
Ethereum, the world’s second most valuable blockchain, has witnessed a roughly 67% decline in the price of ether – its native cryptocurrency. Binance Coin and Cardano’s ADA – the crypto world’s fifth and seventh most valuable coins – are down by 57% and 9% respectively.
News from other corners of the crypto market is likely to depress investor sentiment further in the coming days. Valuations for crypto companies have collapsed in private and public markets. They are also laying off staff.
And, the ecosystem remains as scandal-plagued as ever. Celsius, one of crypto’s biggest lending platforms, stopped withdrawals this morning citing “extreme market conditions.” In a post, the service stated that it was working to “preserve and protect assets to meet our obligations to customers.”
The price of Celsius’s native token, CEL, fell by 50% after the announcement. The platform’s cryptic message has also sparked fears of another crash in the crypto ecosystem similar to the one that occurred after UST’s crash.
As if that wasn’t enough, USDD – a stablecoin for the Tron network – lost its peg to the US dollar this morning. The founder has promised a massive capital infusion, amounting to $2 billion, to rescue the peg. Previous experience has proved that it may not be a successful recipe. As of this writing, USDD is changing hands for $0.98.
Why Did Bitcoin Crash?
Bitcoin’s unique antecedents and recent history make it difficult to identify a single reason affecting its markets. A selloff is the most obvious reason for a price decline. In the most recent case, some are blaming miners for instigating the latest crash. Analysts also blame broader macroeconomic forces, such as the Fed’s tightening of the economy, inflation, and Russia’s invasion of Ukraine.
One writer blamed Treasury Secretary Janet Yellen’s recent comment for the cryptocurrency’s steep decline. “It is not something that I would recommend to most people who are saving for their retirement,” she said. “To me it is a very risky investment. Yellen had earlier referred to Bitcoin as a “speculative asset”.
However, those arguments contradict the cryptocurrency’s marketing by its enthusiasts, who claim that it is an inflation hedge and is immune to the state of the broader global economy.
Is This Beginning of Bitcoin’s End?
Some are predicting that the latest crash in Bitcoin’s price might also be its last one. If the cryptocurrency’s price does not recover quickly from its current downward spiral, then it would “seriously undermine” the investment case for the cryptocurrency and lead to an exodus of money from its ecosystem, they say.
Bitcoin’s fundamentals, however, tell a mixed story. The total hashrate, or the amount of computing power deployed to mining the cryptocurrency, has increased since the beginning of June as the difficulty level of the algorithm used to mine the cryptocurrency has declined. In simple words, this means that there are more miners engaged in its ecosystem now. But their overall revenues are down from early June. The influx of investments and new products from institutional investors and financial institutions has also changed the contours of its markets, making the prospect of a complete price crash unlikely.