on the crypto
Other than “cryptocurrency winter”, the market is currently experiencing a cryptocurrency apocalypse. The major tokens Bitcoin, Ethereum and Solana hit their lowest levels of the year. For Bitcoin and Ethereum, these are lows that have not been seen since the end of 2020 / early 2021. Late yesterday evening, Bitcoin, Ethereum and Solana were traded at $ 20.951, $ 1.095 and $ 26,06 respectively.
At 11:30 am, Solana bounced 10% in the past 24 hours, while Ethereum made a small gain of 0,7%. That said, Bitcoin is currently in the red, with a further 2,6% decline in the past 24 hours, albeit still well above yesterday's lows.
The three main reasons
These staggering declines in major tokens, considered by many to be stores of value, appear to be driven by three key factors.
- The first is the deterioration of the macro environment for risk assets. The Federal Reserve is ready to raise interest rates tomorrow. Following a rather negative CPI data earlier in the week, the rise is expected to be 75 basis points (previously only a 50 basis point increase, or 0,5%, was expected) .
- Second, the potential systemic fallout from cryptocurrency lender Celsius (CEL 54,15%) continues to reverberate on the industry. Celsius announced a freeze on withdrawals on Sunday, signaling that liquidity and solvency could be a problem for this lender, which could have wide repercussions on the cryptocurrency market. Adding to this intriguing story were rumors that Celsius CEO Alex Mashinsky was arrested by the FBI.
- Finally, Binance, the largest cryptocurrency exchange in the world by volume, yesterday announced the freezing of some Bitcoin withdrawals. The blame was attributed to a "blocked transaction" which caused a backend of the network backend. Although the problem seems solved, the sector questions the stability of the cryptocurrency ecosystem with respect to price shocks.
There is a lot of news to assimilate right now
In many ways, this week has been one of the busiest for cryptocurrency investors for some time now. Indeed, while many investors are hoping that some semblance of normality will take over at some point, it appears that negative catalysts continue to find a way to climb to the top in 2022.
Investors can't do much for the macro environment. Liquidity will be taken out of the system sooner or later, and this will certainly have an effect on the cryptocurrency market.
However, it is the potential systemic risks associated with cryptocurrency lenders and exchanges that worry investors. We've all seen what happened when Terra's stablecoin ecosystem imploded. If falling cryptocurrency prices mean stablecoins, cryptocurrency exchanges, and lending platforms aren't going to work, there's hardly a long-term bullish case for this sector.
What will happen now?
To be sure, the cryptocurrency market has not yet undergone a real "stress test" through a recession. While it is debatable whether we are already in a recession or whether a recession will materialize, it is clear that this environment is perhaps the most unstable the cryptocurrency market has ever seen since its inception.
As a result, 2022 promises to be a volatile year for investors. While I'd like to be able to define a bottom for these top tokens, as long as there are no signs of capitulation in the markets, it's unclear if we're nearing the end of the sell-off. I am preparing for what could be a very eventful race.
