Image: Reuters Berita 24 English - On Monday morning, the cryptocurrency industry was on edge as investors concerned that contagion from di...
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| Image: Reuters |
Berita 24 English - On Monday morning, the cryptocurrency industry was on edge as investors concerned that contagion from difficulties at large crypto firms might cause a massive shakeout if not addressed.
Bitcoin, which has lost 57% this year and 37% this month, dipped below $20,000 for the first time since December 2020 over the weekend. The level has symbolic value because it corresponds to the peak of the 2017 cycle.
The price drop comes as a result of problems at multiple large industry players, and future drops might have a cascading impact as other crypto investors are forced to sell their holdings to pay margin calls and cover losses.
Three Arrows Capital, a crypto hedge fund, is considering its alternatives, including asset sales and a bailout by another firm, according to its founders in a Wall Street Journal piece published Friday, the same day Asia-focused crypto lender Babel Finance announced it would cease withdrawals.
Many of the industry's current issues may be linked back to the catastrophic collapse of so-called stablecoin TerraUSD in May, as announced by US-based lender Celsius Network earlier this month.
On Monday, bitcoin was trading on either side of $20,000, while ether, the second-largest cryptocurrency, was trading at $1,075, having fallen below its own symbolic barrier of $1,000 over the weekend.
"Everyone breathes a sigh of relief if the market rises; things will be refinanced, people will raise equity, and all risk will vanish." But I think it might be a major shitstorm if we go any lower from here," said Adam Farthing, chief risk officer for Japan at crypto liquidity provider B2C2.
"A lot of credit is being removed 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, resulting in a significant reduction in the total amount of credit available in the crypto ecosystem."
"It reminds me a lot of 2008 in terms of the potential for a cascade of bankruptcies and liquidations," Farthing added.
To be fair, the crypto advances have coincided with an equities downturn, with U.S. stocks suffering their largest weekly percentage fall in two years on fears of increasing interest rates and a looming recession. [MKTS/GLOB]
The price of bitcoin has tended to swing in a similar way to other risk assets like tech stocks.
Investors sought the relative safety of bitcoin and stablecoins, whose values are tethered to established assets, most often the US dollar. Smaller cryptocurrencies have been hammered even harder than major tokens.
According to price portal Coinmarketcap, the global crypto market capitalization is around $870 billion, down from a high of $2.9 trillion in November 2021.
However, the market capitalizations of stablecoins have fallen in recent months, indicating that investors are taking money out of the industry as a whole.
Tether's market cap has dropped to roughly $68 billion on Monday, down from around $83 billion in early May.
