Hong Kong (Reuters) – The cryptocurrency sector was on edge on Monday morning as investors feared contagion from difficulties at prominent crypto companies may unleash a catastrophic shakeout if not contained.
Bitcoin, which has lost 57 percent so far this year and 37 percent this month, plummeted below $20,000 over the weekend for the first time since December 2020.The level is of symbolic significance, as it was around the pinnacle of the 2017 cycle.
The price slide followed troubles at numerous big industry firms, while future dips could have a knock on impact as other crypto investors are forced to liquidate their holdings to make margin calls and pay losses.
Three Arrows Capital is investigating its alternatives, including the sale of assets and a bailout by another firm, its founders told the Wall Street Journal in a piece published Friday, the same day Asia-focussed crypto lender Babel Finance said it will suspend withdrawals.
U.S. based lender Celsius Network earlier this month indicated it would restrict withdrawals, and many of the industry’s recent issues can be traced back to the stunning collapse of so-called stablecoin TerraUSD in May.
On Monday, Bitcoin was trading either side of $20,000 on Monday, while no.2 token ether was at $1,075, having slipped below its own symbolic milestone of $1,000 over the weekend.
“If the market goes up, everyone breathes a sigh of relief. Items will get refinanced, people will raise equity, and all of the risk will evaporate.” But if we move any lower from here, I think it could be a major shitstorm, “said Adam Farthing, chief risk officer for Japan at crypto liquidity provider B2C2.
“There is a lot of credit being withdrawn from the system and if lenders have to absorb losses from Celsius and Three Arrows, they will lower the size of their future loan books, which implies that the overall quantity of credit accessible in the crypto ecosystem is substantially diminished.”
“It feels exactly like 2008 to me in terms of how there may be a domino effect of bankruptcies and liquidations,” Farthing added.
To be fair, the advances in crypto have coincided with an equity slump, as U.S. stocks experienced their largest weekly percentage decline in two years on fears of rising interest rates and the greater risk of recession.
The bitcoin price has tended to move in a fairly comparable fashion to other risk assets such as tech stocks.
Smaller cryptocurrencies have been even harder hit than major tokens as investors sought the comparative safety of bitcoin and stablecoins, whose values are tethered to those of traditional assets, most notably the U.S. dollar.
The whole crypto market capitalization is around $870 billion, according to price tracker Coinmarketcap, down from a peak of $2.9 trillion in November 2021.
However, even stablecoins’ market capitalisations have declined in recent months, suggesting investors are removing money from the sector as a whole.
Tether , the world’s largest stablecoin, has had its market cap plummet to roughly $68 billion on Monday, from over $83, billion in early May.