NEW YORK (June 20): Today, there was a feeling of trepidation in the crypto world as the world’s biggest cryptocurrency struggled to hold above a threshold. Investors worried that problems at major crypto players could lead to a broader shakeout.
At one point, Ethereum fell 7.8% but stayed above $1,000. Cryptocurrencies like Solana, Cardano, and Dogecoin decreased in value.
Bitcoin slumped below $20,000 for the first time since December 2020 on Saturday, falling as low as $17,592.78, the lowest price since December 2020. In the latest crypto meltdown, its value has fallen nearly 60% this year and 37% this month alone.
Global equity markets are also experiencing a meltdown, spilling into crypto markets. Global central bankers are turning hawkish in response to inflationary pressures. This is also causing a lack of liquidity in the cryptosphere.
As risk appetite has reduced and the dollar has strengthened, investors outflows over $100 million from crypto funds last week.
Moreover, an array of popular assets have fallen as much as 33% in the past seven days, including Bitcoin, Ethereum, Tether, Dogecoin, and Shiba.
In November 2021, coinmarketcap.com reported that crypto markets’ market value was 2.97 trillion dollars. As of today, it is about $950 billion.
During rising interest rates, macroeconomic stress and the movement of money towards safer investments such as government bonds contribute to crypto assets’ demise.
Earlier in London trading hours, Bitcoin’s (BTC) price was just under $20,000 – roughly the height of its charge to the previous high in 2017 – amid weak macroeconomic sentiment and contagion risks among cryptocurrency markets.
Many major industry players are experiencing problems, contributing to Bitcoin’s fall. According to market players, further declines could lead to other crypto investors selling their holdings to cover margin calls and losses.
As bears continued to dominate price action on Saturday, Ethereum fell below the psychological $1,000 mark.
On Sunday, however, the market took a turn for the better as the whole crypto ecosystem recovered and several coins recovered at basic levels, with Bitcoin hitting a high of $20,000.
Why is crypto crashing?
Two important events have transpired this past week. One, the market cap of cryptocurrencies fell below USD 1 trillion (USD 3 trillion at its peak in October 2021) and below the level seen in January 2018. Currently, crypto assets have not only lost half their value from pre-Covid highs but are at a four-and-a-half-year low.
Over the past six months, bitcoin, widely regarded as a hedge against the continuous printing of currency by central banks, has tumbled by over 70 percent.
Since the last cricketing event featured a lot of ads for coin exchanges, you probably know that cryptocurrencies are in decline.
Secondly, the Bank of Japan (BoJ) kept the interest rates negative on Friday. It also said that borrowing costs would be held at the present level or lower. While virtually every other central bank in the world has raised rates (lowering them), the Bank of Japan believes the inflation in Japan is lower than in the western countries.
Japan’s Yen (JPY) surprised many when it depreciated following the announcement. Countries with lower inflation should have stronger currencies (according to the purchasing power parity). It’s also worth mentioning that during past periods of risk aversion, the JPY acted as a stabilizer, hardly fluctuating.
Different problems arise from this. As a result of depreciating currency in a country with low inflation (and low-interest rates), carry trades can occur.