Bitcoin Price Continues Crumbling As Celsius Contagion Spreads

The dreaded W word is re-entering the crypto lexicon. Chatter about a crypto winter is on the cards once again after the asset class’s spectacular pandemic run.

The irony of crypto becoming one of the first casualties of an impending recession is rich because its enthusiasts have spent years positioning it as a hedge against central bank policies and distinguishing the asset class from mainstream finance. In the end, though, it was the Fed’s monetary policies that contributed to a pandemic boom and subsequent bust in crypto prices.  

The conditions for a crypto winter are certainly there. Prices for major cryptocurrencies are in doldrums. Prominent projects within its ecosystem have already imploded or are in the process of doing so. And, regulators have increased their scrutiny and are asking questions about some of the biggest projects in cryptocurrencies.

While bitcoin has fallen by more than 66% since its November high, it is still an open question whether it has reached a bottom.

Galaxy Digital founder Mike Novogratz told audiences at a Morgan Stanley conference that Bitcoin will hit a bottom in the $20,000 to $21,000 range. Arthur Hayes, founder of BitMex, tweeted that a fall below the $20,000 mark would put “selling pressure” on traders in spot markets. Ostensibly, this means it could go further down.

The premiere cryptocurrency briefly tested the $20,000 mark this morning and is trading at $21,326.68 as of this writing.

The Celsius Contagion  

Meanwhile, the Celsius contagion continues to make news. The lender is reported to have hired a law firm to explore ‘restructuring’ and financing options. It is not clear what those options might be.

There are threads on Twitter advising Celsius customers to file cases with small claims courts. Very few such cases might be filed because six blockchain addresses collectively own 85.6% CEL tokens that are used for transactions on the lending platform. According to its website, Celsius has 1.7 million customers.

A bankruptcy filing might be one the options being considered by Celsius, if it goes under. It would mean the fall of a unicorn. Celsius has raised $864.3 million based on data from Crunchbase. Last October, after a $750 million fundraise, CEO Alex Mashinsky told journalists that the London-based firm was valued at between $3.5 billion to $4 billion in private markets.

Ripples of the Celsius controversy may have traveled to Three Arrows Capital – a prominent Singapore-based venture capital firm. This morning, one the co-founders of the firm posted a cryptic tweet about “communicating with stakeholders” and “working this out”.

There’s speculation that the firm might become insolvent due to current market conditions and mass liquidations – amounting to $400 million – of major coins at trading venues. 3AC, as it is more commonly known, has invested in many well-known crypto names, including Avalanche, Polkadot, and ether. According to The Block’s reporting, the firm sustained heavy losses during the recent UST implosion.

Again, a Twitter thread details a possible scenario that might result from the concert of collapsing lenders and funds. “…the collapse of a major fund and a major lender will shrink overall credit in the system and lead to continued deleveraging,” writes the author. In simple words, this means that there might be more margin calls and liquidations in the near future and prices for major tokens might fall further.

Expect more bad news in the weeks to come.

“I think there’s pain that’s not hit the market yet,” Doug Schwenk, co-founder and chief executive officer of Digital Asset Research, told Coindesk.  

Regulation  Ahoy!

The silver lining, if you can call it that, to a crypto winter might be possible regulation. The National Bank Act and the National Currency Act in 1864 and 1863 kicked off the process to streamline financial services and create a common currency in the United States.

While bitcoin and its cohort may never become national, or for that matter, fiat currencies, regulatory shackles might lead to more mainstream acceptance. But the jury is still out on the severity of those shackles.

SEC Chair Gary Gensler yesterday criticized the first stab at a comprehensive crypto regulatory bill by Senators Cynthia Lummis (R-WY) and Kirsten Gillibrand (D-NY) released last week. According to him, the bill would “undermine” existing investor protections in the US financial services market, the world’s biggest and most sophisticated such market.

Timothy Massad, former CFTC commissioner, is a voice of moderation, however. He is a proponent of “reasonable regulation” for crypto markets. Such regulation would include, among other things, adequate disclosures and reporting about products from crypto companies to protect investors. He said the securities framework is “more appropriate” for crypto products like Celsius.

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