Bitcoin dropped below $24,000 late Monday and hit its lowest level since December 2020 as investors abandoned crypto amid a wider sell-off in risk assets. So, why are Bitcoin and cryptocurrencies falling?
Bitcoin, Ethereum and other leading cryptocurrencies fell further over the weekend, erasing the slight gains made over the previous week. According to CoinMarketCap, the global crypto market cap fell 7.5% to $1.03 trillion in just 24 hours.
Bitcoin has fallen 18% in the past seven days, dropping below $26,000 to a 2022 low and a 12-month low of $25,513. Ethereum has gotten worse, down 28% over the past week, even after a mostly successful merge test drive on the Ropsten testnet on Wednesday.
It wasn’t just BTC and ETH. Each of the top 20 cryptocurrencies by market cap has fallen by double-digit percentages over the past seven days.
Last week BNB 22%, Cardano (ADA) 24%, XRP 18%, Solana (SOL) 31%, Dogecoin (DOGE) 28%, Polkadot (DOT) 28%, Avalanche (AVAX) 35% and Polygon (MATIC) fell by 25%.
The crypto market has not looked stable all year after a major bull run in 2020 and 2021, but the current Crypto Winter started in earnest in the first week of May, when the big coins fell with the stock market. Then the Terra ecosystem (UST and LUNA) burst into flames (although a Chainalysis report this week attributed Bitcoin’s decline to the broader tech stock sale, not Terra). Since then, tech stocks have continued to take a hit and crypto has fallen further. The slide intensified last week, and the May CPI reading showed consumer goods prices rose 8.6% compared to May 2021, the highest annual inflation figure since 1981.
Bitcoin has been used as a hedge against inflation for years, but it didn’t behave that way in 2022, reaching the highest level of correlation with the S&P 500 and the Nasdaq since 2020 in January of this year.
For now, crypto and tech stocks are falling hand in hand.
Why Are Cryptocurrencies Falling?
Macro factors are driving the crypto markets down as widespread inflation continues and the US Federal Reserve is expected to raise interest rates this week to control rising prices.
US indices were heavily sold last week as the tech-heavy Nasdaq fell sharply. Bitcoin and other cryptocurrencies tended to correlate with stocks and other risk assets. When these indices fall, crypto also falls.
Since November 2021, sentiment has changed drastically given the Fed’s rate hikes and inflation management. It also potentially looks like a recession, given that the Fed may need to finally address the demand side to manage inflation.
All this indicates that the market has not completely bottomed out, and unless the Fed can take a breather, we probably won’t see a rebound of the bullish
Bitcoin had dropped nearly 80% from its last record high in the previous bear markets. It is currently down about 63% from the all-time high it reached in November.
We could see much lower bitcoin prices in the next month or two.
Celsius Poured Gasoline on the Fire!
The crypto market has also been tense since mid-May when the so-called algorithmic stablecoin terraUSD or UST and its sister cryptocurrency luna collapsed.
The market is now worried about a crypto lending company called Celsius, which on Monday said it paused all withdrawals, swaps and transfers between accounts “due to extreme market conditions”.
Claiming to have 1.7 million customers, Celsius advertises its users that they can get 18% efficiency from the platform. Users deposit their crypto with Celsius. This crypto is then lent to institutions and other investors. Users then receive yields as a result of the income that Celsius earns.
But crypto market sales hurt Celsius. According to its website, the company’s assets were worth $11.8 billion as of May 17, up from more than $26 billion in October last year.
Celsius’s own cryptocurrency, CEL, has dropped more than 50% in the last 24 hours, according to CoinGecko. Investors are worried about a wider contagion in the crypto market.
Markets in general were already under pressure due to inflation concerns and interest rate hikes, but such contagion with crypto has led to huge dips given that the market is tightly interconnected these days with various interconnected protocols and businesses. it could be.
