This Week in Coins: Bitcoin and Ethereum Crash More Than 30% as Recession Fears Loom
The Federal Reserve also introduced the biggest interest rate hike since 1994, and crypto lender Celsius evoked memories of Terra.
This week’s crypto crash is an ongoing spectacle, with the total market capitalization of all blockchain assets shrinking to about $844.5 billion, a level unseen since the very start of 2021.
Bitcoin plunged well below $20,000, and as of this writing was trading at $19,095—the market leader has shed one-third of its value over the last seven days.
Ethereum is also in the trenches, trading at time of writing for $994.68, a 36% decrease over the week.
Other leading cryptocurrencies that took price hits of 30% or more this week include privacy coin Monero, down nearly 37% to $102.28, Cronos, down 30% to $.10, and Polygon, down 33% to $.36.
Each of the 30 biggest cryptocurrencies, excepting stablecoins, have fallen by double-digit percentages since last Saturday.
Tether is currently trading a little short of its peg at $0.9988.
‘Extreme market conditions’
While many crypto skeptics were quick to point out the falling prices, markets everywhere have been sliding.
On Wednesday, the U.S. Federal Reserve announced an interest rate hike of 0.75%—the largest since 1994. When the Fed hikes rates, many investors tend to dump riskier assets, like crypto and tech stocks, girding for a possible recession.
A report from S&P Global Market Intelligence published the same day revealed that FAANG stocks (linked to Facebook, Amazon, Apple, Netflix, and Google), have shed a combined $3.328 trillion this year.
Similarly, a closer look at the blockchain industry’s happenings this week shows things were pretty bleak.
It began Sunday night, when crypto lender Celsius froze all customer withdrawals, swaps, and transfers, citing “extreme market conditions” and liquidity issues. That night, the decentralized finance platform’s native CEL token took a 70% hit in one hour amid a wider market selloff that sank Bitcoin’s price to 2020 levels.
Celsius’s decline may have catalyzed the market’s downturn this week because it came just a month after the collapse of another DeFi standard bearer: Terra. To understand how they compare, just look at Celsius’s business model: Celsius offers over 7% returns for locking up stablecoins such as USDC and Tether, and 7.25% for Polygon, 6.25% for Bitcoin, and 6% for Ethereum. The protocol then loans out its pooled tokens at higher rates.
Now, Terra’s dollar-pegged stablecoin, UST, ran to zero last month after its top use case—earning 20% yields on Anchor—was compromised by market uncertainty. A mass exit followed, leading to billions of UST getting burned to mint LUNA at a rate too fast for the pegging algorithm.
While Celsius has not collapsed anywhere near as quickly as Terra, a lot of funds have fled recently: In the first half of 2022, the total amount of digital assets locked on the protocol shrank from around $24 billion to $12 billion.
On Wednesday, embattled Celsius CEO Alex Mashinsky broke a three-day silence to tout the strength of Celsius’s community, but offered no clues as to when users would once again be able to withdraw funds.
On Thursday, a Wall Street Journal report suggested that Celsius’s leading investors are not prepared to bail out the company.
There was also industry-wide talk of an “extended crypto winter.” Both Coinbase and Celsius rival BlockFi are slashing their workforces by up to 20%.
Meanwhile, Binance is, erm, hiring.