Bitcoin went crashing further on Monday below $24,000, hitting a 29-month low. The recent dip was spurred by sustained selloff of crypto assets by investors as it becomes clearer that bitcoin is not a hedge to inflation.
Bitcoin has been on a nosedive performance since mid-last year, following the pullout of Tesla from the frenzy by its major cheerleader Elon Musk. The electric vehicle manufacturer had opted out of using bitcoin as a means of payment due to concern about its carbon footprints, which is contrary to the gospel of cleaner energy that Tesla stands for. The crypto market’s predicament was exacerbated by China’s clampdown on everything crypto.
As a result, the crypto market has lost its glorious capitalization of $3 trillion, costing investors billions of dollars and forcing crypto companies to downsize and to limit their services.
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Over the weekend and into Monday morning, more than $200 billion had been wiped off the entire cryptocurrency market. The cryptocurrency market capitalization fell below $1 trillion on Monday for the first time since February 2021, according to data from CoinMarketCap.
Celsius, a crypto lending company has suspended withdrawals for its customers. “Due to extreme market conditions, today we are announcing that Celsius is pausing all withdrawals, Swap, and transfers between accounts,” the company said in a memo to clients on Monday.
Crypto exchange company Crypto.com announced on Saturday that it is laying off 260 workers, 5% of its workforce. CEO Kris Marszalek said in a tweet that the Singapore-based exchange uses the approach to stay focused on executing against [its] roadmap and optimizing for profitability.
“That means making difficult and necessary decisions to ensure continued and sustainable growth for the long term by making targeted reductions of approximately 260 or 5% of our corporate workforce,” he added. The CEO did not specify when the layoffs would be happening.
Others have towed the same path. On June 2, Coinbase said it will freeze hiring and withdraw some job offers. On the same day, Gemini said it was going to cut about 10% of its workforce. Binance has also paused withdrawal.
These drastic measures not only spark fears of contagion into the broader market, but also concern that the crypto crash is far from over.
A CNBC analysis that involves chats with experts in the industry highlights key factors enabling the current downturn.
Macro factors are contributing to the bearishness in the crypto markets, with rampant inflation continuing and the U.S. Federal Reserve expected to hike interest rates this week to control rising prices.
Last week, U.S. indices sold off heavily, with the tech-heavy Nasdaq dropping sharply. Bitcoin and other cryptocurrencies have tended to correlate with stocks and other risk assets. When these indices fall, crypto drops as well.
“Since Nov 2021, sentiment has changed drastically given the Fed rate hikes and inflation management. We’re also potentially looking at a recession given the FED may need to finally tackle the demand side to manage inflation,” Vijay Ayyar, vice president of corporate development and international at crypto exchange Luno, told CNBC.
“All this points to the market not completely having bottomed and unless the Fed is able to take a breather, we’re probably not going to see bullishness return.”
Ayyar noted that in previous bear markets, bitcoin had dropped around 80% from its last record high. Currently, it is down around 63% from its last all-time high which it hit in November.
“We could see much lower bitcoin prices over the next month or two,” Ayyar said.