Cryptocrash: why is the cryptocurrency market down?
New riders of the ‘crypto hype train’ are ‘getting hammered’ by falling bitcoin and Ethereum
The cryptocurrency market has shed two-thirds of its value in seven months, compunded by a “brutal bout of selling” on Monday.
According to data site CoinMarketCap, the overall market reached as low as $892bn yesterday, a large drop from its peak of $2.9trn in November last year.
The largest and most well-known cryptocurrency, bitcoin, fell to an 18-month low of $23,750, and was down by 50% so far this year.
What is going on?
Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, told the news agency that bitcoin and Ethereum, the second most popular cryptocurrency, are “prime victims of the flight away from risky assets as investors fret about spiralling consumer prices around the world”.
What happened yesterday?
After another report of high inflation in the US on Friday and further fears of interest rate hikes, “both the stock market and cryptocurrencies tumbled” on Monday, said Fortune.
Crypto was “hit hard” after lender Celsius announced that it was suspending transactions and withdrawals on Sunday, citing “extreme market conditions”, explained the magazine.
It added that the “world’s largest crypto exchange, Binance, also briefly paused withdrawals, but has since resumed activity and called the interruption a result of ‘several minor hardware failures’”.
The “blow-up shows risky investing and capital preservation are mutually exclusive”, said the Financial Times’ Lex team. Platforms such as Celsius, which had advertised an annual percentage yield of 18.63%, appeared to “offer the best of all worlds to crypto enthusiasts”, but the lender “cannot lay on free lunches indefinitely or immunise against depositor runs”, they continued.
Most crypto traders are “relative newbies, making them the largest and hardest-hit group in Monday’s brutal bout of selling”, added Bloomberg. It is those retail investors “who rode the crypto hype train over the past year” who are now “getting hammered”.
Tony Edward, who hosts the Thinking Crypto podcast, admitted that the market is “not pretty”, but he is convinced it is a case of “market cycles playing out”. He described the cryptomarket as a “pendulum” that “swings very high” but he said “the crashes also are brutal”.
Scott Melker, a crypto investor and analyst, told Forbes that it is “difficult to predict what comes next” for the market as it will “largely be determined by contagion from potential platform collapses, inflation numbers, Fed tightening and other factors”.
He concluded: “Now is not a time to make guesses, but rather to batten the hatches and ride the storm.”