Bitcoin, which has lost around 57% so far in 2022 and 37% this month, dropped below $20,000 over the weekend for the first time since December 2021. The level is of massive symbolic significance, as it was nearly the peak of the 2017 bull cycle.
The price drop comes after challenges at many major industry operators, while further drops may have a knock-on effect as other cryptocurrency investors are compelled to sell their holdings to meet margin calls and cover most of their losses.
For now, Crypto hedge fund Three Arrows Capital appears to be exploring its options, including the sale of some of its assets and a bailout by another company, its founders told the Wall Street Journal in a story that was published on June 17, the same day that Asia-focused crypto lender Babel Finance confirmed that it would suspend withdrawals.
On the other hand, US-based lender Celsius Network earlier this month stated that it would suspend all withdrawals, and many of the sector’s recent issues can be traced back to the spectacular implosion of the so-called stablecoin TerraUSD in May.
Bitcoin was trading on either side of $20,000 on Monday, while Ether was at $1,070, having plunged below its symbolic level of $1,000 over the weekend. Adam Farthing, chief risk office for Japan at cryptocurrency liquidity provider B2C2, stated:
“If the market goes higher, everyone breathes a sigh of relief, things will get refinanced, people will raise equity, and all of the risks will dissipate. But if we move much lower from here, I think it could be a total shitstorm.
There is a lot of credit being withdrawn from the system and if lenders have to absorb losses from Celsius and Three Arrows, they will reduce the size of their future loan books which means that the entire amount of credit available in the crypto ecosystem is much reduced.
It feels very like 2008 to me in terms of how there could be a domino effect of bankruptcies and liquidations.”
To be quite sure, the developments in the cryptocurrency have now coincided with an equities drop, as United States stocks suffered their largest weekly percentage drop in two years on fears of increasing interest rates and the growing possibility of a recession.
The bitcoin price has seemed to move in a nearly similar manner to other risk assets such as the tech stocks. Smaller cryptos have been even harder impacted than the major tokens as investors looked for the comparative safety of bitcoin and stablecoins whose values are mainly pegged to the traditional assets, most notably the United States dollars.
Nevertheless, even the stablecoins’ market caps have plunged in recent months, suggesting that investors are pulling money from the industry in general. Tether, the world’s biggest stablecoin has seen its market capitalization drop to nearly $68 billion on June 20, from more than $83 billion in early May.