Bitcoin stems heavy losses but pessimism reigns in crypto markets

Published June 14, 2022
Representations of virtual currency Bitcoin are seen in this picture illustration. — Reuters/File
Representations of virtual currency Bitcoin are seen in this picture illustration. — Reuters/File

Bitcoin steadied on Tuesday after earlier hitting a new 18-month low, as major crypto lender Celsius Network's freezing of withdrawals and the prospect of sharp US interest rate rises shook the volatile asset class.

Bitcoin clawed its way to positive territory after falling as much as 7.3 per cent to $20,816, its lowest since December 2020. It was last hovering around $22,399.

The world's largest cryptocurrency fell 15pc on Monday, its sharpest one-day drop since March 2020. It has shed about half its value this year and over 20pc since Friday alone. Since its record high of $69,000 in November, it has slumped nearly 70pc.

Citing "extreme" market conditions, New Jersey-based Celsius said this week that it had frozen withdrawals and transfers between accounts "to stabilise liquidity and operations while we take steps to preserve and protect assets".

The move, combined with expectations of sharper US Federal Reserve interest rate hikes after high US inflation data last week, pushed the value of the crypto market under $1 trillion for the first time since January 2021.

Most crypto market-watchers were pessimistic on Bitcoin's immediate prospects.

"With the broader risk sentiment firmly negative the sellers have had it all their own way for a few days," said Richard Usher at crypto firm BCB Group. "It will take a shift in the overall risk sentiment to turn the price around significantly."

Bitcoin's slump is likely to have ramifications for other companies exposed to the crypto market.

On Tuesday, cryptocurrency exchange Coinbase Global Inc said it would slash 18pc of its workforce, or about 1,100 jobs, as part of efforts to rein in costs amid volatile market conditions.

US software firm MicroStrategy Inc — a major backer of Bitcoin — said last month a drop below $21,000 would trigger a demand for extra capital against a loan secured by some of its Bitcoin holdings.

That could see it stake more Bitcoin against the loan or trigger the sale of some of its vast holdings. The company did not immediately respond to a request for comment outside business hours.

MicroStrategy and Coinbase were down 6.5pc and 5.5pc respectively in premarket trading on Tuesday as the decline in Bitcoin roiled crypto-related stocks.

Number two token Ether also recovered somewhat after losing as much as 10pc to $1,075, a fresh 15-month low. Ether is down 75pc from its record high of $4,869, hit in November.

'Panic'

Celsius, which had around $11.8 billion in assets, offers interest-bearing products to customers who deposit crypto on its platform. It then lends out coins to earn a return.

"The market is now panicking about the impact and contagion if Celsius becomes insolvent," wrote Singapore fund manager QCP Capital in a note.

Crypto investors were already rattled by the collapse of the TerraUSD and Luna tokens in May which were shortly followed by Tether, the world's biggest stablecoin, briefly breaking its 1:1 peg with the dollar.

Celsius's move to suspend withdrawals has raised fresh questions about regulatory oversight of such crypto-lending platforms.

On Tuesday, US Securities and Exchange Commission chair Gary Gensler told an event that such platforms were operating akin to banks and questioned how some platforms could offer such large returns.

"I caution the public. If it seems too good to be true, it just may well be," he added.

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