Bitcoin’s cascading losses accelerate in record-breaking rout
- Largest cryptocurrency tumbles as much as 13 per cent on Saturday, breaching US$18,000, as sell-off quickens
- The total market cap of cryptocurrencies was around US$870 billion on Saturday, down from US$3 trillion in November
Bitcoin plunged through several closely watched price levels to the lowest since December 2020 as evidence of deepening stress within the cryptocurrency industry keeps piling up against a backdrop of monetary tightening.
The largest digital token by market value tumbled as much as 13 per cent to US$17,859 on Saturday, marking a record-breaking 12th consecutive daily decline according to Bloomberg data. It is still only the biggest drop since Monday. Ethereum breached US$1,000 and dropped almost 19 per cent to US$891, the lowest since January 2021. The two bellwethers of the cryptocurrency market are both down more than 70 per cent from all-time highs set in early November.
“What we’re seeing is more liquidations driving prices and sentiment lower, which triggers more liquidations and negative sentiment – some flushing-out needed still, but this will at some stage exhaust itself,” said Noelle Acheson, head of market insights at Genesis, one of the largest and best-known lenders in the digital-assets space.
The latest leg down pushed bitcoin below US$19,511, the high the coin hit during its last bull cycle in 2017, which it reached at the end of that year. Throughout its roughly 12-year trading history, bitcoin has never dropped below previous cycle peaks.
Alt-coins were no exception to soured investor appetite in the wake of bitcoin’s fall, with every token on Bloomberg’s cryptocurrency monitor trading in the red. Cardano, solana, dogecoin and polkadot recorded 24-hour falls of between 9 per cent and 12 per cent on Saturday, while privacy tokens such as monero and zcash lost as much as 11 per cent.
A toxic mix of bad news cycles and higher interest rates has been deleterious to riskier assets like cryptocurrency. The Federal Reserve raised its main interest rate on June 15 by three-quarters of a percentage point – the biggest increase since 1994 – and central bankers signalled they will keep rising aggressively this year in the fight to tame inflation.
“Investors are continuing to position defensively following last year’s liquidity-driven digital asset bull market,” Alkesh Shah, head of cryptocurrency and digital assets strategy at Bank of America Corp., said in a note on Friday. “Although painful, removing the sector’s froth is likely healthy as investors shift focus to projects with clear road maps to cash flow and profitability versus purely revenue growth.”
Broader signs of stress emerged with last month’s collapse of the Terra blockchain, and worsened this week following cryptocurrency lender Celsius Network Ltd.’ s recent decision to halt withdrawals.
Adding to the mood, cryptocurrency hedge fund Three Arrows Capital suffered large losses and said it was considering asset sales or a bailout, while another lender, Babel Finance, followed in Celsius’s footsteps on Friday. Even long-term holders who have avoided selling until now are coming under pressure, according to researcher Glassnode.
“After Celsius, the focus last few days has been Three Arrow Capital and Babel Finance.” said Teong Hng, chief executive of Hong Kong-based cryptocurrency investment firm Satori Research. “Su Zhu, the founder of 3AC seems to be missing in action, after purportedly suffering huge losses due to massive drop in cryptocurrency this round.”
Stablecoins – a type of cryptocurrency asset pegged to the value of a fiat currency like the US dollar – have also struggled.
The top four stablecoins saw exchange net outflows last week that were 4.5 times larger than the prior week, Bank of America’s Shah said, having charted net outflows in eight of the 10 prior weeks. Stablecoins are often relied upon by cryptocurrency traders to move funds around the ecosystem without needing to exit into traditional currencies, so persistent outflows indicate that investors remain defensive, he added.
Even with the piercing of the key US$20,000 level, historical data shows that bitcoin may find key support around that mark as previous sell-offs demonstrate where the token usually finds points of resilience, according to Mike McGlone, an analyst for Bloomberg Intelligence.
Bitcoin may “build a base around $20,000 as it did at about $5,000 in 2018-19 and $300 in 2014-15,” he said in a note on Wednesday. “Declining volatility and rising prices are earmarks of the maturing digital store-of-value.”
Still, the digital currency is fast approaching its December 2020 low of US$17,589. It traded as low as US$13,222 the prior month that year.
The cryptocurrency market now stands at a fraction of its heights in late 2021, when bitcoin traded near US$69,000 and traders poured cash into speculative investments of all stripes. The total market cap of cryptocurrencies was around US$870 billion on Saturday, down from US$3 trillion in November, according to pricing data from CoinGecko.