As bitcoin collapsed over the weekend, dropping nearly 14% in just 24 hours to below $24,000 in the morning Monday (June 13), it’s impossible to say that it is doing anything but reacting to the stock market.
Crypto industry and traditional Wall Street analysts and investors who just a year ago were touting bitcoin as a hedge against inflation — “digital gold” — have been quick to point to the increasingly shaky economy and tumbling stock markets as the cause of its collapse.
See also: War in Ukraine Poses First Big Test for Bitcoin as a Haven in Times of Crisis
The latest drop, which took bitcoin from hovering a little below $30,000 past another psychologically important level, $25,000, and then $24,000 in the early hours of this morning, accelerated after the U.S. stock market opened sharply lower, dropping more than 3.3% within an hour of the opening bell.
For several months now, it has been impossible to say that both bitcoin and the broader crypto market have been doing anything but reacting to the bad economic news out of the U.S., where fears about the war between Russia and Ukraine have heightened international tensions just as inflation soared to 40-year highs, wreaking havoc on the stock market.
Last year’s widely accepted idea that bitcoin had become a whole new kind of asset, an inflation hedge frequently called “digital gold” has been largely debunked outside of core crypto enthusiasts, and by many of them as well. But not given up on entirely.
On Friday (June 10), Novogratz, CEO of crypto investment bank Galaxy Digital and a widely respected figure in crypto financial circles predicted at an industry conference that bitcoin will be in for a rough ride until “the Fed flinches and takes its foot off the break,” CoinDesk reported.
That said, he predicted that the biggest cryptocurrency would hit bottom before the U.S. stock market, saying that his hope is “that by the fourth quarter, the economy will be slowing enough that the Fed says we are going to pause, and then you will see the next crypto cycle start,” he said. “Then bitcoin will break from equities and lead markets.”
Crypto Fallout
In the meantime, the weekend’s price collapse pushed bitcoin’s market capitalization below $1 trillion for the first time since it reached that psychologically important mark in February of 2021. At the height of the 2021 bull market, it was north of $3 trillion.
In another sign, Nasdaq-listed cryptocurrency exchange Coinbase, the first U.S crypto company to go public and something of a bellwether for Wall Street’s view of the crypto market, saw its price tank again after the opening bell, down 14% within a half hour to $51, down 85% since it went public last April.
Bitcoin’s wild ride is taking a toll beyond just investors’ wallets, however.
Over the weekend, an important crypto lending protocol, Celsius Network, halted withdrawals and trading of all assets, leading to widespread speculation on the crypto Twitter circuit and industry news outlets that it may be facing insolvency.
Celsius is a centralized version of crypto lending platforms at the heart of decentralized finance, or DeFi, that offer loans in crypto — often stablecoins — to people who put up 125% to 150% of the amount borrowed as collateral. That collateral is automatically liquidated if its value drops too close to the amount borrowed. In the case of sharp price drops this can happen before borrowers have time to top up their collateral accounts.
Another centralized crypto lender, Nexo, has offered a lifeline, offering to acquire its assets, absorbing “qualifying” loans — meaning those that are still fully collateralized — and customers. A company spokesperson told Cointelegraph that it was trying to do the “right thing” for the crypto community.
It’s potentially the biggest crypto collapse since the $45 billion collapse terraUSD stablecoin — UST — following a run in early May that was a shock to the system for crypto.
Read more: TerraUSD’s Price Collapse Shows Vulnerability of Dollar-Pegged Cryptos
It highlighted a lot of fears that regulators and central bankers have about the dangers of crypto investing in general and stablecoin in particular, and was certainly a factor in bitcoin’s decline, blockchain data analytics firm Chainalysis said on June 10.
But, it added, “the crypto market’s recent downturn appears more closely linked to the tech market decline than to UST’s collapse,” noting that bitcoin had “significant price correlations” with the Nasdaq-100 technology sector index and S&P 500.
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