On Saturday, Bitcoin slid below the $19,000, extending a slide that has been rather brutal for the cryptocurrency market. There was a fall of more than 9% in the price of Bitcoin in a matter of 24 hours, as the currency was down to $18,642.22 at about 2 p.m. ET. The last time the world’s first cryptocurrency had been at this value was in December 2020. The second-largest crypto in the market, Ether also plummeted by 10.54% and was trading at $963.22.
The Crypto Market is Crumbling
The year has been a tough one for crypto investors, as they have had to grapple with the aggressive hike in the interest rates by the US Federal Reserve and the liquidity crisis in the crypto industry has also put a lot of companies in a financial crunch.
On Wednesday, the Fed announced that it was increasing the interest rates by 75 basis points, which is the largest hike after 1994. This has seen a reduction in risk appetite and investors are pulling out of all risky assets, which include stocks and cryptocurrencies.
Apart from that, the crypto market is also dealing with the after-effects of the crash of two major tokens worth $60 billion in the previous month. An algorithmic stablecoin, TerraUSD was supposed to be valued at $1, but it plunged to a fraction of a cent. It also took down its sister cryptocurrency Luna with it, which saw its value go down to zero.
The Liquidity Crisis
The week started with Celsius Network, a renowned crypto lender, announcing that it was pausing withdrawals, transfers and swaps on its platform. Users were not able to access their funds and this gave rise to concerns about the company’s insolvency. Celsius functions in the same way as banks, since it take crypto deposits from clients and lends it to institutions for making a return on their deposits.
Most of the assets deposited with Celsius are kept in the decentralized finance (DeFi) space. The company said that it was working for the benefit of the community. Three Arrows Capital, another major player in the crypto space, has also found itself in the midst of liquidity problems. The meltdown in the crypto market drove down the value of the holdings of the $10 billion crypto hedge fund, due to which it is now on the brink of bankruptcy. 3AC had invested in Terra and had leveraged bets on various tokens like ether, bitcoin and Solana.
Experts Consider Companies Responsible
Economists likened the turmoil in digital assets to the process of natural selection in the crypto space. They said that since there is no centralized authority, it is the responsibility of the companies to be responsible. The companies that have poor security, poor risk management and excessive leverage are not likely to succeed. They added that while the process is a painful one, not having a centralized backstop is a good thing because it means there can be no bailouts as in the fiat system.