In the cryptocurrency market, it is deja vu again.
Cryptocurrency prices are falling; investors panic; the collapse stops and prices stabilize; they try to bounce back, but the rebound doesn’t really last.
This sequence has been repeated several times, but this time it is different in one key respect: the price drop is much sharper and more marked. Bitcoin is now trading at its lowest levels since 2020.
The cryptocurrency king has wiped out all the gains he made in 2021. He now trades around $23,166, according to data firm CoinGecko, just over a third of his record high of $69,044.77, set on Nov. 10.
This loss has affected other altcoins as well, basically any cryptocurrency other than bitcoin. Ether, a token native to the Ethereum platform, has seen its price drop 75% from its November 10 high of $4,878.26.
(Ether enthusiasts will tell you that this currency has a bright future because the Ethereum ecosystem allows people to develop applications for different uses.)
And then there is this number, which is quite chilling: the cryptocurrency market on June 13 fell below $1 trillion. It has lost more than $2 billion since reaching just over $3 billion in November.
What’s going on?
You’ve probably heard it before: The crash is due to investor concern about the health of the economy. They fear that the Federal Reserve’s interest rate hikes, designed to fight inflation, will dampen the economy and, in particular, consumption. If consumers don’t spend, companies struggle to sell their products and services and won’t continue to invest.
The second point, which is linked to the first, is that when everyone is in doubt, it is the risk assets that pay the price. This is the case with technology and cryptocurrencies, which largely sell promises and invite investors to buy them. It is therefore no surprise that we have been watching tech stocks and cryptocurrency prices move in tandem for some time now.
The third point is that the crypto industry has been badly hurt by its own demons: scandals. These scandals have revived mistrust of this industry. In one month we have seen two big and resounding scandals.
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The most recent concerns the decentralized finance, or DeFi, company Celsius Network.
Celsius has decided to indefinitely suspend fund withdrawals, as well as other financial transactions, on its platform. To understand the impact of this decision, consider that Celsius’s business model is for investors, both retail and professional, to transfer their bitcoin and other crypto funds to its platform.
Celsius allows lenders to connect directly with borrowers. Transactions can be completed only if both parties have funds converted to crypto on the platform. By suspending withdrawals, for example, Celsius sends the message that no one can access your funds.
Investors speculate about the future of the platform. Celsius did not respond to a query from TheStreet.
The other scandal occurred in May. These were sister tokens UST and Luna, which crashed because millions of investors wanted to redeem their tokens at the same time. The debacle of UST and Luna, sister tokens belonging to the Terra ecosystem, caused more than $55 billion in losses for investors.
What to do now? Stay or go.
Many economists say we are headed for a recession. Economist Peter Schiff, one of the strongest critics of bitcoin and cryptocurrencies, says that we are witnessing a return to Earth.
“Looks like #Bitcoin is going to the moon after all,” Schiff said on Twitter. “The problem for #HODLers is that he started his journey on Pluto. After passing the moon, he’s headed straight for Earth. Just don’t look for a soft landing!”
HODL stands for “hold for life” and is a popular term among cryptocurrency enthusiasts. It is similar to the buy and hold investment strategy.
And indeed, investors are also listening to evangelists like billionaire Michael Saylor, who runs MicroStrategy. The company owns 129,218 bitcoins, 4,827 of which were purchased in the first quarter at an average price of $44,645. And he is not intimidated.
Ultimately, each investor will have to decide whether to stay or go. But with everything else people have heard about cryptocurrencies, they’ve also heard comments like this many times:
“It is very important to recognize that cryptocurrency volatility is the rule, not the exception. Cryptocurrencies are a young market and therefore inherently unstable,” said Anna Becker, co-founder and CEO of cryptocurrency trading platform. AI EndoTech.