Cryptocurrency prices are affected by an unprecedented crisis of confidence
Fear and panic are back in the crypto market.
Admittedly, they never really left, but investors had managed in recent sessions to take a break and catch their breath. But this was only short-lived.
June 30, the last day of the second quarter of 2022, which began on April 1, was like the May and June trading sessions: very volatile. Bitcoin began by falling below the $19,000 threshold before rising slightly.
The king of cryptocurrencies ended the quarter at around $19,305.77, according to data firm CoinGecko, down 58.5% over the quarter. This is the worst quarterly performance for Bitcoin since the third quarter of 2011 when it lost 68.1% of its value.
To date, Bitcoin has fallen 72.1% from its all-time high of $69,044.77 set on Nov. 10 amid the crypto craze.
Ether, the native token of the popular blockchain Ethereum, lost 70.4% of its value in the second quarter. This is its worst quarter on record since 2015.
The second digital currency by market value is down 78.4% compared his all-time high of $4,878.26 set on Nov. 10.
Other cryptocurrencies were also down sharply, especially tokens attached to decentralized finance (DeFi) protocols/projects, which want to replace traditional finance: Solana, considered the Bank of America of the industry, Cardano fell 4.1%, Polkadot and Avalanche.
Overall, the crypto market has lost over $2 trillion since breaking the record high of over $3 trillion in November.
A Highly Leveraged Industry
In general, cryptocurrencies are suffering from the aggressive monetary policy of the Federal Reserve, which wants to curb inflation at its highest in 40 years. This willingness of the Fed raises fears of a recession, which pushes investors to flee risky assets, such as cryptocurrencies.
“Is there a risk we would go too far? Certainly, there’s a risk,” Federal Reserve Chairman Jerome Powell said at the ECB meeting on June 29, referring to the Fed’s commitment to increasing interest rates to curtail inflation. “The bigger mistake to make – let’s put it that way – would be to fail to restore price stability.”
Higher interest rates could push the U.S. economy into a recession, some experts warn.
“Investors are bracing for #recession and higher short-term interest rates than previously expected. But they’re not bracing for #inflation remaining high despite both,” economist and Bitcoin skeptic Peter Schiff wrote on Twitter.
In addition to these macroeconomic concerns, the crypto market is rocked by scandals, the latest of which is the ongoing liquidation of hedge fund Three Arrows Capital (3AC), a source told TheStreet. The fund is paying for its hundreds of millions investment in crypto Luna, which crashed in May along with its sister UST or TerraUSD. This led 3AC to miss a margin call with fintech BlockFi.
Margin call means an investor has to commit more funds to avoid losses on a trade made with borrowed cash.
The 3AC case raises the question about the liquidity of several crypto lenders in a highly leveraged industry.
Indeed, the lenders Celsius Network and Babel Finance had to suspend withdrawals of funds on their platforms. Investors wonder if Celsius, for example, will not be forced to file for bankruptcy.
It’s not just lenders who are affected. Cryptocurrency exchange platform CoinFlex has also been preventing its customers from withdrawing their money since last week because of “extreme market conditions.”
CEO Mark Lamb went on Twitter to say that long-time crypto investor Roger Ver owed CoinFlex money. Ver denies he owes the platform money.
