Cryptocurrency crash: what is happening?
The global market of cryptocurrency dipped below US$1 trillion to $962 billion for the first time yesterday since 2020. Bitcoin fell below US$23,000, hitting its lowest point since December 2020. Over the weekend, Ethereum collapsed by 24%, falling to its lowest level in more than 14 months. Meanwhile, crypto lending company Celsius froze withdrawals for its customers yesterday, claiming it lacked the funds to honour withdrawal requests.
What’s going on?
Overall, the crypto market has lost more than 2 thirds of its value since peaking on November 8, 2021, falling from $3 trillion, to US$962 billion yesterday. And it’s still falling as we publish this article.
The prime cause of the crypto crash is rampant inflation, according to some investment pundits. Rising food, gas and energy prices are putting pressure on the crypto market as people exit high risk markets. Inflation fears are causing huge sell-offs by investors, who are becoming more risk averse and steering clear of investing in riskier, more volatile assets.
Co-founder and CEO of crypto investment platform Mudrex, Edul Patel, shone some light on crypto’s rapid demise…
“The crypto market has been under pressure from the Federal Reserve, hiking the interest rates to combat inflation over the past few months. Bitcoin, Ethereum, and most cryptocurrencies suffered losses over the weekend after a broad sell-off following the data showing US inflation hitting a 40-year high.”
Celsius – a crypto lending company which claims to have 1.7 million users – is also to blame for fueling fear among investors. The way Celsius works is that users deposit their crypto, which is then loaned out to other investors. Then, users get a cut of the revenue Celsius earns – a yield as high as 18%.
Yesterday, Celsius froze all withdrawals, swaps and transfers between accounts “due to extreme market conditions.” CEL, Celsius’s own currency, is down more than 50% in the last 24 hours. Meaning, people who deposited money to reap Celsius’s famously high returns, can’t get their money out. Currently, about $8 billion in deposits are frozen with no news on when users will be able to access their money again. Celsius said it could “take time.”
If the market wasn’t already under enough pressure from inflation and interest-rate concerns, the Celsius situation only added fuel to the fire.
Binance, a large cryptocurrency exchange, also briefly halted trading yesterday. The reasoning is unclear, but by the afternoon the company said its problems had mostly been resolved.
The future of crypto is uncertain at best, but more losses can be expected in the short term, according to Edul Patel…
“As investors seem to have panicked, the number of crypto liquidations has been high since Friday… the bearish trend may likely continue in the next coming days.”
SOURCE: Financial Express
