Nothing is going right in the crypto ecosystem. Prices are falling and bad news is piling up. Having become closely associated with the stock markets, cryptocurrencies are considered risky assets just like technology stocks by institutional investors and fund managers. It is now subject to the same traditional stock market concerns related to inflation, monetary tightening by central banks and the risk of recession in many countries, particularly the United States.
Thus, risk aversion leads many investors to withdraw their funds from cryptocurrencies. And prices go down. Bitcoin price dropped below $21,000 on Monday and has lost as much as 70% since its all-time high in early November. The decline was most noticeable for Ether (-77%), the second most capitalized cryptocurrency, which fell below $1,100. The capitalization of the entire sector rose from three thousand billion dollars last November to nearly 940 billion dollars on Monday evening.
Panic among new investors
“There was $4.7 billion in bitcoin sales at a loss on Monday, which is unprecedented in a single day,” said Laurent Pignot, a financial analyst at Zonebourse. “It’s symptoms of panic among investors,” he said. But at the same time, “large wallets with more than 10,000 bitcoins have ballooned,” notes Laurent Pinot, based on figures from Glassnode, a crypto data provider.
The analyst concludes that “panic is more significant among investors who have invested recently and less among those who have a little more experience.” More seasoned investors continue to buy because they believe that the price of Bitcoin will rise in the long term.
Withdrawals are prohibited on degrees Celsius
However, the bad news for the sector does not end with lower prices. Or rather, this landing reveals deeper flaws within the crypto ecosystem. Platforms have stopped the possibility of withdrawing funds, such as banks who are afraid to rush to savers’ offices to get their money back.
Thus, the network Celsius, which specializes in lending cryptocurrency, has temporarily suspended “all withdrawals, derivatives and transfers between accounts” on its platform, “due to severe market conditions,” and the company justified this. The platform, which has 1.7 million customers and $11.8 billion under management, explains that it has taken this action in order to position itself “in a better position to meet, in the long term, its withdrawal obligations.” Investors don’t know when they will see their money again, or if they will actually get it back.
Stable Coins Alert
The platform may suffer a liquidity crisis due to its exposure to the stablecoin, which faltered in May, which led to a wave of panic in the cryptocurrency market. “We don’t know the investment strategy for players like Celsius,”
Explains Stanislas Barthelemy, an advisor at Blockchain Partner, a KPMG advisory firm. This type of platform often offers investors attractive interest, sometimes well above 10%, in exchange for their crypto loan. “They are starting to get regulated but they are still very opaque,” the expert recalls.
Since yesterday, another “algorithmic” stablecoin, the USDD, which works very similarly to terra, has encountered a problem. It struggles to maintain parity with the dollar, when it is supposed to be worth $1 permanently. The Tron DAO team behind this stablecoin has injected the equivalent of $700 million in cryptocurrencies in a bid to return to parity with the dollar. Without success at the moment: It was still only $0.98 at 7:30 PM on Tuesday. Fortunately, USDD is not an industry heavyweight like terra, which was the fourth stablecoin before its collapse.
Binance is also struggling
In another sign of severe market turmoil, Binance, the world’s largest cryptocurrency exchange, announced a complete suspension of bitcoin withdrawals on Monday. Set to last for 30 minutes, this comment finally lasted several hours in a market with over 90 million users.
A fairly reassuring event for the market. “It has already happened in the past that platforms have suspended their exchanges, especially during the fall of the crypto market in 2018, yet Laurent Pinot frets. “Binance received too many transactions to process at one time and could not manage them,” explains Stanislas Barthelemy. He believes that the problem comes from “mismanagement of risks by some actors.”
But it is not the intrinsic performance of the cryptocurrency, nor the blockchain, that is in question.
Hiring and dismissal
Many companies in the sector were severely affected by the lower prices. There are many announcements of hiring freezes and even layoffs. Brian Armstrong, president of Coinbase, one of the largest platforms in the sector listed on Nasdaq, unveiled an 18% cut plan on Tuesday, which should lead to 1,100 job cuts. “It grew very, very quickly,” he explains, as Coinbase ramped up development and hiring in 2021, when prices soared.
This plan joins a long list. The Geminin platform, founded by the Winklevoss brothers, had already announced the dismissal of 10% of its staff in early June, due to its “crypto winter”. For its part, Crypto.com has made the decision to lay off 260 employees, or about 5% of its workforce. BlockFi, which specializes like Celsius in crypto loans and borrowing, finally announced that it was firing 20% of its staff on Monday. Against the current, Binance has continued with that hiring and is still looking to fill 2,000 jobs.
The current purge may be a blessing in disguise. “It’s a way to clean up the market in order to get back into good standing,” said Judge Stanislas Barthelemy. “The current period will reveal players who are really tough and resilient,” believes Laurent Pinault. According to him, most of the price drop has passed, even if Bitcoin “still could drop below $20,000.” Others are more pessimistic. In an interview with 21M News, Christopher Dembek, director of macroeconomic research at Saxo Bank, predicted a rapid drop in the cryptocurrency, potentially as high as $10,000.