JThe cryptocurrency market could use a bit of a break, but its unconventional nature means there is no pause. Trading in digital assets such as bitcoin and ethereum operates 24/7, unlike their conventional stock counterparts on the New York and London stock exchanges, which have weekends at least. off.
Thus, a torrid week tends to follow one another for this most specialized market. Bitcoin – the cornerstone of the cryptocurrency – fell below the key $20,000 level on Saturday morning, meaning it has fallen 34% in the past seven days, according to CoinGecko, which showed that ethereum, the other mainstay of the market, had fallen 40% to $994 during the same period. There are fears that bitcoin’s fall could trigger further selling, resulting in a tumultuous seven days for digital assets.
The entire crypto market fell below $1 trillion last week, a precipitous decline from its peak of $3 billion in November last year. A number of factors drove the declines – a mix of crypto-specific events and broader macro issues – and some of them will continue to weigh on the market this week as well.
On Monday, cryptocurrency lending platform Celsius Network halted withdrawals due to “extreme market conditions,” prompting a selloff. Celsius, a bank-like company that offers customers high interest rates on their cryptocurrency deposits, has yet to lift restrictions on withdrawals or announce a resolution to its issues.
Three Arrows Capital, a cryptocurrency hedge fund that makes high-leverage bets on crypto assets, is also preparing its future after being hit hard by the sale of digital assets. Amid insolvency rumors last Wednesday, Zhu Su, the Dubai-based investor behind Three Arrows, tweeted that “we are communicating with relevant parties and fully committed to resolving this issue.”
Kyle Davies, co-founder of Three Arrows, brought a little more clarity to the wall street journal Friday, saying the company was exploring options, including selling assets and bailing out another company. “We always believed in crypto and we still do,” Davies said.
But for others, there is less belief that the problems will go away in the short term. Confidence in cryptocurrencies was undermined last month by the collapse of terra, a so-called stablecoin, whose value was supposedly pegged to the dollar.
“I would say the dust hasn’t settled yet,” says Teunis Brosens, chief economist for digital finance at Dutch bank ING. “Investors can continue to act on their doubts and test the stability of various crypto stablecoins, platforms and companies. We could see more casualties in the form of liquidity in some coins drying up, stablecoins losing their pegs, and funds having to stop redemptions.
Brosens adds that some of the issues affecting the stock and bond markets have impacted bitcoin. Cryptocurrency was seen as a hedge or hedge against inflation. This has not been the case recently, as rising inflation prompted central banks to raise interest rates, a combination that still hits risky assets.
“Bitcoin is actually not considered an inflation-proof store of value today,” Brosens says. “Instead, bitcoin and crypto as a whole have behaved much like traditional risky assets so far this year, retreating as fears of inflation and rising rates grow.”
Some market watchers believe that crypto will not fully decouple from broader markets. “What we’ve tended to see with crypto, and bitcoin in particular, is that it moves with the stock market,” says Kim Grauer of Chainalysis, a blockchain research firm. “There are periods we’ve seen over the past few weeks where the inflation numbers hit, the Fed raises rates, the market crashes and bitcoin follows. But it bounces back very quickly and correlates with the stock market.