Bitcoin and other cryptocurrencies fell sharply as investors dumped risky assets. A crypto lending firm called Celsius is pausing withdrawals for its clients, raising fears of contagion in the broader market.
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Bitcoin dipped below $23,000 on Monday, hitting its lowest level since December 2020, as investors dumped cryptocurrencies amid a sell-off in risky assets.
Meanwhile, a crypto lending firm called Celsius has paused withdrawals for its clients, raising fears of contagion in the broader market.
Bitcoin, the world’s largest cryptocurrency, fell below the $23,000 mark, according to data from CoinDesk. At one point, bitcoin dropped around 17% to trade around $22,764. Some of those losses were later recovered, and by around 2:20 p.m. on Wall Street, Bitcoin was down 14.3% at $23,586.
Over the weekend and as of Monday morning, more than $200 billion had been wiped from 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.
Macro factors are contributing to the bearish trend in crypto markets, with rampant inflation continuing and the US Federal Reserve expected to raise interest rates this week to control price rises.
Last week, US indices sold off sharply, with the tech-heavy Nasdaq falling sharply. Bitcoin and other cryptocurrencies tend to be correlated with stocks and other risky assets. When these indices fall, cryptocurrencies also fall.
“Since November 2021, sentiment has changed dramatically due to Fed rate hikes and inflation management. We are also potentially facing a recession given that the Fed may need to finally address the demand side to manage inflation,” Vijay Ayyar, vice president of corporate. development and international on cryptocurrency exchange Luno, he told CNBC.
“All of this points to the market not fully bottoming out and unless the Fed can take a breather, we probably won’t see a comeback higher.”
Ayyar noted that in previous bear markets, bitcoin had fallen about 80% since its last record. 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.
Celsius ‘adding fuel to the fire’
The crypto market has also been on edge since mid-May, when the so-called terraUSD algorithmic stablecoin, or UST, and its sister cryptocurrency luna crashed.
Now the market is concerned about a crypto lending firm called Celsius, which said on Monday that it will pause all withdrawals, trades and transfers between accounts “due to extreme market conditions.”
Celsius, which claims to have 1.7 million customers, advertises to its users that they can get an 18% return through the platform. Users deposit their crypto with Celsius. That crypto is then loaned out to institutions and other investors. Users then get performance as a result of the revenue Celsius earns.
But the crypto market sell-off has hurt Celsius. The company had $11.8 billion in assets as of May 17, down from more than $26 billion in October last year, according to its website.
CEL, which is Celsius’s own coin, is down more than 50% in the last 24 hours, according to CoinGecko. Investors are concerned about broader contagion in the crypto market.
“The Celsius situation is definitely adding fuel to the fire,” Ayyar said.
“Generally speaking, markets were already under pressure from concerns over inflation and interest rate hikes, but with cryptocurrencies, such contagion events could cause outsized drops, given the market is so tightly intertwined these days. with a variety of protocols and interconnected businesses.
Mikkel Morch, CEO of crypto hedge fund ARK36, suggested there could be more pain ahead.
“In the medium term, everyone is preparing for more falls,” he said. “Bear markets have a way of exposing previously hidden weaknesses and over-leveraged projects, so we may see events like the Terra ecosystem reversal last month.”
– CNBC’s Pippa Stevens and Ryan Browne contributed reporting.