Explained: Why is the cryptocurrency market crashing?

Crypto market sell-off continued on Tuesday with Bitcoin and Ether falling to new 18-month lows. Bitcoin is the largest cryptocurrency in the world, while Ether is the number two token. But not just the top two, all major cryptocurrencies have been trading in the red lately, and the drop has tested even long-term investors. What has triggered this latest crash? Is there a reprieve in sight for investors?

What has triggered the latest liquidation?

The slide began last week on Friday in sync with the sell-off in US stock markets triggered by a higher-than-expected rise in inflation and fears of more aggressive interest rate hikes by the Fed. US Federal While crypto markets should ideally function independently of traditional markets, they have in the past also been sensitive to movements in the mainstream financial world.

Monday brought more bad news as major crypto lending firm Celsius Network froze withdrawals. In a blog post, New Jersey-based Celsius announced that it froze withdrawals and transfers between accounts “to stabilize liquidity and operations while we take steps to preserve and protect assets.” He blamed “extreme market conditions” for the move, saying the move was intended to put “Celsius in a better position to meet its retirement obligations over time.” As of now, he has not given a timetable for the resumption of withdrawals.

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In early May, the cryptocurrency market had taken a huge hit after the surprising drop in the

TerraUST, an ‘algorithmic’ stablecoin with its value backed by a sister token known as Luna.

The dark red crash, which wiped out $40 billion of investor funds, shook the system because stablecoins aren’t prone to wild fluctuations like other cryptocurrencies.

What is Celsius, why does its withdrawal ban matter?

Celsius is a cryptocurrency lender, which essentially means that it is a bank of the crypto world.

Crypto lenders allow customers to deposit their coins with them for interest and then lend crypto for a return.

With assets of around $11.8 billion, Celsius is a big player in the crypto lending market. Crypto savings parked with these lenders have been known to offer returns in the order of 17% to 20%.

These financial services are easier to access than traditional banks, but otherwise have no regulatory oversight.

According to a Financial Times report, the value of assets parked with Celsius on May 17 was less than $12 billion compared to more than $24 billion in December 2021.

How bad is the crisis?

This is the second major cryptocurrency market crash in a month. Given the overall negative risk sentiment, a reversal of fortunes seems unlikely any time soon.

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In this latest accident, the The value of the crypto market fell below $1 billion for the first time since January 2021.

After hitting a record high of $69,000 in November of last year, Bitcoin is down almost 70%. It was trading in the $22,000 zone on Tuesday. The number two token, Ether, is down 75% from its November high of $4,869.

The latest accident is likely to speed up the process of government oversight. In the US, two senators on Tuesday proposed legislation to create a regulatory framework for the cryptocurrency industry, the Associated Press reported.

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