LONDON (Bywire News) - For the first time since December 2020, Bitcoin fell below $20,000. It’s a 57% drop this year and 37% over the course of the month. With fear mounting, there is a growing feeling that the major cryptocurrency players could be reaching a critical point.
With the market in freefall, major industry players have been in the spotlight as they struggle to meet margin calls and cover losses. One of the largest, Three Arrows Capital (3AC) told The Wall Street Journal they were exploring a number of options such as selling assets or receiving a bailout from other firms. On the same day Asia focused lender Babel Finance announced they would be suspending withdrawals.
The news follows the announcement from US Celsius Network that it would be suspending withdrawals.
Many of these problems date back to the collapse of the Terra ($UST) stablecoin in May. Since then the crypto sector has been gripped by panic with Bitcoin and Ethereum both passing symbolic landmarks. As Bitcoin was dipping below $20,000 Ethereum sunk below the symbolic $1000 mark prompting many to suggest cryptocurrencies are hitting a reckoning.
Adam Farthing, Chief Risk Office For Japan at B2C2, wasn’t mincing his words. "If the market goes higher, everyone breathes a sigh of relief, things will get refinanced, people will raise equity, and all of the risks will dissipate,” he said. “But if we move much lower from here, I think it could be a total shitstorm.
"There is a lot of credit being withdrawn from the system and if lenders have to absorb losses from Celsius and Three Arrows, they will reduce the size of their future loan books which means that the entire amount of credit available in the crypto ecosystem is much reduced.
"It feels very like 2008 to me in terms of how there could be a domino effect of bankruptcies and liquidations," Farthing concluded.
Bitcoin’s woes are reflected in the wider stock market where US stocks experiences their biggest weekly drop in two years as rising interest rates and growing fears of a recession affect all risk assets.
In times gone past, Bitcoin was seen as a safe haven at times such as these. However it has become increasingly correlated with the traditional financial markets. This, together with the troubles hitting cryptocurrencies, has created a perfect storm of fear and loathing around Bitcoin and digital currencies in general.
According to Coinmarketcap, the total capitalisation of the crypto market is around $870 billion – a significant downturn from the peak of $2.9 trillion in November 2021. Even stablecoins – which had been seen as relatively more dependable – have been struggling with Tether, the world's largest stablecoin seeing its market cap fall from the heights of over $83 billion in early May to around $68 billion on Monday.
The crypto sector, then, is in the grip of the mother of all bear markets. It’s happening at a time when the entire global economy is set on a downward spiral. While it has experienced peaks and troughs in the past, the future feels more uncertain than it has in a long time.
(Writing by Samba Jallow, editing by Tom Cropper and Klaudia Fior)