The bad news keeps piling up for cryptocurrency markets.
There was little respite for investors as the rout in bitcoin price, which began over the weekend, continued this morning. Bitcoin price dipped below the key $22,000 support level though it managed to stay above $20,000. The cryptocurrency is down by roughly 66% from its high last November. Other cryptocurrencies also witnessed significant downdrafts. Ethereum’s ether, Cardano’s ADA, and Ripple were all down by an average of 15% in the last 24 hours.
The contagion of low prices has affected the performance of futures linked to cryptocurrencies. Online publication Coindesk writes that exchanges have begun liquidating crypto futures positions because traders were unable to fulfill margin calls. Bitcoin and ether topped the list with liquidations of $532 million and $317 million worth of futures positions.
Bitcoin’s Domino Effect on Crypto Markets
Bitcoin’s losses are having a domino effect on the fortunes of companies in the sector or those with exposure to cryptocurrencies. Many have announced layoffs as they digest losses to their business and prune their operations to size.
In public markets too, crypto companies are feeling the pressure. Some, like MicroStrategy, are invested in cryptocurrencies through their Treasury while others, like Coinbase – North America’s biggest cryptocurrency exchange by trading volume, are directly associated with its ecosystem.
Bitcoin’s hemorrhaging value has affected stocks for both of those companies. Analysts at JPMorgan cut Coinbase’s rating to neutral from overweight and reduced its price target to $68 from $171. The firm stated that current crypto prices would have a “material negative impact on Coinbase revenue.” MicroStrategy’s stock crashed by 25% yesterday amid investor fears of a margin call after Bitcoin fell below $23,000. Compounding these developments are the ever-present crypto scams and scandals that continue to generate headlines and narratives of a catastrophic crash in the crypto ecosystem.
The Crypto Sideshow
If there is a consolation in all of this, it is that the crypto carnage remains a sideshow – and not the highlight – of global business news. Plunging equity and bond markets, inflation, supply chain bottlenecks, and rising interest rates are just some of the issues grabbing investor’s attention. The turn away from the spotlight might be a blessing for crypto as it flushes out bad business models and ideas from its ecosystem.
The last crypto downturn, back in 2018, almost led to the demise of initial coin offerings (ICOs) and a prolonged crypto winter. This downturn has already produced plenty of casualties. But it is still an open question as to whether the current crash will result in low prices for the next couple of years.