Bitcoin Crashes Towards $20,000 as Crypto Crash Continues

Bitcoin and other cryptocurrencies are in free fall.

Dan Kitwood | fake images

The cryptocurrency sell-off deepened further on Wednesday, with bitcoin sinking very close to the key $20,000 level.

The bitcoin price plunged 9% in 24 hours to around $20,208, according to data from Coin Metrics. The world’s largest digital currency is down more than 70% since the peak of the cryptocurrency craze in November 2021.

Bitcoin and other digital tokens are in freefall as fears of rising inflation, aggressive interest rate hikes, and liquidity problems at a key player in the crypto space have plagued crypto markets.

The Federal Reserve is widely expected to raise rates by 75 basis points this week, a move that has spooked stocks and other risky assets, including cryptocurrencies.

Mostafa Al-Mashita, Executive Vice President of Canadian crypto firm SDM, said that crypto has been caught up in the broader “risk-off environment” affecting markets.

“What we are experiencing is the impact of a worsening macroeconomic trend where inflation is rising due to supply chain issues,” he said.

Earlier this week, crypto lending firm Celsius began blocking users from accessing their funds, fueling speculation that the firm could soon become insolvent.

Investors are concerned that a possible Celsius sell-off could spell even more pain for cryptocurrencies, potentially bringing down other major players.

“If Celsius crashes, a liquid cascade could occur where whales that have leveraged bets on Bitcoin and Ethereum are liquidated,” said Marcus Sotiriou, an analyst at UK-based digital asset broker GlobalBlock.

Celsius has a large number of assets in the decentralized finance space, including Staked Ether, a token offered by crypto firm Lido Finance that is meant to be worth the same as Ether, the second-largest cryptocurrency.

Staked Ether is essentially an IOU that investors buy to earn rewards for their Ether holdings. The original ether is kept locked in the crypto equivalent of a vault that cannot be accessed until the Ethereum blockchain successfully passes a long-awaited upgrade.

Celsius “may be forced to sell its holdings to meet redemptions as the underlying ETH is locked up with no withdrawal date in sight,” Marc-Thomas Arjoon, research associate at CoinShares, said in a note published Monday.

The crypto market was already on shaky ground after the $60 billion crash of two popular tokens last month. Now, key players in the space are bracing for a long-term bear market known as a “crypto winter.”

Numerous companies have slashed costs, with Coinbase announcing on Tuesday that it would lay off some 1,100 people.

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