Black Monday in the crypto market

The week starts in the red for major cryptocurrencies. Bitcoin’s price drops below $24,000, a level it has not seen since December 2020.

A month after the crypto crash, it starts again. At the time of writing, major cryptocurrencies are in the red, with significant declines. Coming Monday around 3 p.m., the queen of cryptocurrencies, bitcoin, is down more than 13% since this Sunday, trading at less than $24,000. This is the lowest level since December 2020. The asset has lost 65% of its value from its all-time high in November at $69,000.

In its fall, it dragged down major cryptocurrencies, including ether, which plummeted even more than bitcoin: the cryptocurrency fell more than 17% in the past 24 hours, trading around $1,200.

A sharp falling capital letter

The capitalization of all cryptocurrencies in circulation is logically falling: 7 months ago the market was worth $3,000 billion, now it stands at $968 million. That is a return to the level of January 2021.

This Monday, the decline in the cryptocurrency market is even stronger than it was during the crypto crash a month ago: bitcoin did not fall below $26,000, while analysts feared that a drop below this level could cause bitcoin to fall as low as $20,000.

Today, some analysts are already wondering how far the asset can go. Last month, the crypto crash had a lot of impact in terms of losses for individuals and investors, faced with the fall of cryptos, especially with the collapse of the cryptocurrency luna and the stablecoin terra usd (UST).

Similarities can be seen with the crypto crash of a month ago, especially in the stablecoin market. At that time, the Terra blockchain’s algorithmic stablecoin terra usd (UST) had crashed, causing it to lose its peg to the dollar and Tether’s USDT had also lost its peg to the dollar (at $0.97), as it is being considered the most resilient stablecoin on the market.

This Monday, two new algorithmic stablecoins just lost their peg against the dollar: USDD and USDN. For its part, Tether’s USDT fell to $0.997 in the early afternoon before rallying again after US cryptocurrency lending and staking platform Celsius announced its customers could no longer withdraw and transfer their funds to cryptos.

“Recent events that have impacted the Celsius lending platform and its original token are the unfortunate result of volatility and extreme market conditions. While Tether’s investment portfolio includes an investment in the company, which represents a minimal portion of our equity, there is no correlation between this investment and our own reserves or our stability,” explains Tether on his blog.

As a reminder, a stablecoin (or stable cryptocurrency) is a crypto asset (or digital asset) linked to a fiduciary currency such as the euro or the dollar. A stablecoin can also be backed by other assets (such as gold). This is called the underlying value of the stablecoin.

When the price of the underlying asset goes up or down, the value of the stablecoin must match. The promise is to maintain parity permanently, e.g. 1 UST = 1 dollar. This peg to a currency is also known as a “peg”. When there is a gap between the value of the underlying asset and that of the stablecoin, it is called a “de-peg” or “loss of parity”.

Financial markets under pressure

For several months now, the cryptocurrency market has become increasingly correlated with other financial markets, especially with the Nasdaq, the US technology index. This Monday, in a bleak economic context, the Nasdaq Composite fell 3.5% in pre-market electronic trading around 3 p.m. Paris time, which may explain a decline in the cryptocurrency market in particular. In general, the cryptocurrency market, which is smaller (capitalization of 1000 billion) than the Nasdaq (19.276 billion according to Factset), is also subject to more volatility. So, a fall in the Nasdaq usually leads to an even sharper drop in the cryptocurrency market.

Technology stocks and cryptocurrencies are among the assets most sensitive to the monetary policy of central banks, especially the US central bank (the Fed). Overall, in the years 2020 and 2021, there was strong liquidity in the markets that was injected by central banks to support economies in the midst of a pandemic.

This caused the cryptocurrency and Nasdaq market and other risky assets to soar. But the year 2022 is different and the economic context has changed. To contain runaway inflation in the United States, the Fed raised its key rate and normalized its balance sheet. Faced with the tightening of monetary policy by the US central bank, investment in the riskiest assets is declining. Less money is circulating in the financial markets, money is more expensive, and this penalizes riskier assets such as US technology stocks and cryptocurrencies.

In this context, the case of the Celsius company has undoubtedly accentuated the decline in cryptos. Bitcoin’s decline accelerated “after the Celsius platform suspended withdrawals,” UBS analyst Mark Haefele told AFP. Indeed, this Monday, Celsius, which has 1.7 million customers and claims approximately $12 billion in assets under management, announced that it will no longer allow its customers to withdraw or transfer their funds in cryptocurrencies.

For several days, many analysts had warned of a liquidity risk for this platform, which is heavily exposed to the lido staked eth (stETH), a synthetic token created in 2020 by the decentralized platform Lido, which has its peg (or “peg”). had lost. with ether (ie 1 stETH = 1 ether) since the crypto crash.

According to some analysts, the company was at risk of default if its users had to extract a lot of ether under stress. The company reportedly recorded net withdrawals of just over $300 million in the last week of May and $160 million last week.

below Twitter post from Celsius announcing the news, many internet users testify to their panic at the impossibility of taking action through this platform, reminiscent of the situation of the Luna cryptocurrency holders, a month ago, who had to do in the face of the collapse .

Other companies may be in turmoil after Celsius?

Such a situation could lead to a contagion in decentralized finances. “stETH may not be ‘de-peg’, but the risk of contagion in decentralized finance (Defi) in a crypto bear market is high,” warned Brad Mills, an industry entrepreneur, last week. the crypto ecosystem, maximalist bitcoin .

The risk of contamination could also affect centralized platforms such as Swissborg, analyst Dirty Bubble Media said. According to the analyst’s data, the company owns 79,597 ethers, 80% of which are stETH. Since the May 12 link loss, if Swissborg closes its position it could lose more than 2,500 ethers, or the equivalent of $4.5 million, the latter estimates.

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