Crypto investors and executives are preparing for further pain after the price of bitcoin fell over the weekend, exacerbating the credit crunch that hit the industry.
Bitcoin, the world’s most traded cryptocurrency, fell as low as $ 17,628 on Saturday before recovering, according to data from CryptoCompare.
Investors and executives have been keen on the price of the token, fearing that a fall below $ 20,000 could lead to the forced liquidation of large mortgaged bets.
Bitcoin, which serves as the main reference for the broader cryptocurrency market, has come under acute pressure in recent months as central banks and governments have shifted from a long period of ultra-low interest rates to a fight against rising inflation.
“This is a dark winter waiting for crypto when the era of free money ends with this weekend another brutal sale across the board. All risk assets are thrown out the window,”[ads1]; said Dan Ives, CEO and senior equities analyst at Wedbush Securities.
The pursuit of returns has changed as major central banks, led by the US Federal Reserve, increase borrowing costs and end the pandemic’s efforts to stimulate economic growth.
Traditional financial markets have been shaken this month as traders worried that the aggressive action could stifle global growth or even trigger a recession. Last week was the worst for global equities since the darkest days of the pandemic in March 2020.
Bitcoin has fallen around 70 percent from its all-time high of almost $ 70,000 in November last year to just over $ 20,000 from Eastern time on Sunday afternoon. Ether, another actively traded token, fell as low as $ 900 over the weekend, meaning the price has fallen four-fifths since peaking late last year.
This has contributed to an escalating credit crunch in the digital asset industry that threatens to engulf many of its major players.
Over the past month, so-called stablecoin terra and its sister token luna – popular with ultra-high-yield cryptocurrencies – collapsed, two lending platforms prevented depositors from withdrawing their assets, and the three-year-old crypto hedge fund failed to meet margin requirements.
The weekend’s sale led to more than $ 600 million in leveraged positions being liquidated, according to data from Coinglass, as traders who had borrowed money to take super-charged market games failed to provide more collateral and were wiped out.
Analysts expect that these losses will put further pressure on traders ‘and lenders’ balances, as many users took out loans against their holdings of cryptocurrencies.
However, dogecoin, the “joke” cryptocurrency, rose after Elon Musk, CEO of electric car maker Tesla, tweeted about his continued support for the token.
Nayib Bukele, the president of El Salvador and a bitcoin champion, told investors on Sunday that they should “stop looking at the graph and enjoy life.” Bukele, who led El Salvador’s introduction of bitcoin as a legal tender last year, has rejected warnings from the IMF about the policy.
The problems in the crypto market have wafted back to the corners of the regular financial market. US-listed MicroStrategy, a technology group that is a major investor in bitcoin, has fallen nearly 70 percent this year. Shares in crypto miners, who earn fees to validate crypto transactions, have also fallen sharply.
Crypto exchanges – platforms that sit right in the teeth of the incessant market crash – have been forced to reverse employment plans. The list includes Coinbase, Gemini, Mercado Bitcoin – a popular exchange in South America – and Celsius’ rival lender BlockFi, which cut 20 percent of employees this month.
Further reporting by Adam Samson in Milan