In the universe of digital assets, the word ‘crypto-winter’ is the most repeated in recent months.
None of the main cryptocurrencies escapes the sharp falls that have been recorded in this market since the end of 2021. The consequences are clear: great losses for investors and for trading platforms. The situation is reminiscent of the 2018 crisis.
Since the outbreak of the pandemic and until the end of last year, cryptocurrencies benefited from the monetary policies adopted by the main central banks to fight the economic consequences of the coronavirus.
These policies resulted in low-cost and easily accessible liquidity for investors, who rushed to invest in cryptocurrencies and large technology companies. Formerly the greatest beneficiaries, they are now the great losers of the change in tone of the central banks, which raise interest rates and reduce their balance sheets to fight high inflation.
Falls
Alejando Zala, country manager of Bitpanda in Spain, underlines that “the current conditions of the cryptocurrency market can only be described as extreme since the ongoing corrections have caused the price of the main virtual currencies to fall to levels that had not been seen before in almost two years.”
In this general environment of crashes that affects the entire market, Bitcoin, the world’s best-known cryptocurrency, has lost $20,000. It has not traded below that level since December 2020.
Already closer to $15,000 than $20,000, Bitcoin has lost almost 74% of its value since November of last year, when it hit all-time highs. He did it by stroking the $69,000. Ether, another of the most renowned cryptocurrencies, has fallen below $1,000, a figure not seen since January 2021.
The difficulties that these assets were going through worsened in May when the crash of the stablecoin terraUSD and the cryptocurrency Luna took place. After these losses, Bitcoin remained stagnant for almost a month around $30,000, until registering further declines, which began in early June.
“There is no doubt that the digital asset ecosystem is now in a new ‘crypto winter,’ that is, a prolonged period of falling prices,” explains Benjamin Dean, director of digital assets at WisdomTree.
In his opinion, this market turnaround is reminiscent of the crisis experienced in 2018, when in June of that year the price of Bitcoin fell to $7,400. It had closed in 2017 at almost $20,000.
In this new crisis and until now, the total capitalization of the 40 main cryptocurrencies is already below a trillion dollars, compared to the 3 trillion that came to be worth last November, at its peak.
The index that measures the sentiment existing among investors in the crypto universe now marks levels of extreme fear. “The capitulation seems to have arrived, but the bottoming out process will take some time,” explained Zala.
Corralitos and Layoffs
The ravages of this sinking extend throughout the ecosystem. Last Monday, the cryptocurrency trading platform Celsius Network suspended all transactions between clients and vetoed the withdrawal of capital due to “extreme conditions” in the market.
Shortly after, Binance, the world’s most widely used platform for buying and selling cryptocurrencies, suspended all Bitcoin withdrawals due to a technical issue. Although the measure was temporary, it contributed to consolidating the distrust of investors.
The falls have also caused other platforms to begin to tighten their belts. The change in the economic cycle and the fear that a recession will lead to a prolonged ‘crypto winter’ has led Coinbase and Gemini to announce staff reductions.
In this context, different institutions and organizations, from the European Central Bank (ECB) to the International Monetary Fund (IMF), insist on their warnings about the risks involved in cryptocurrencies, both for investors and for the financial system as a whole.
“Regulation is important to recover the trust lost in this technology due to speculation,” Alicia Pertusa, head of strategy for client solutions at BBVA, pointed out a few years ago at an event organized by Women in Banking (WIB), the initiative dedicated to the promotion of the women’s the role in Spanish banking.
“In the second half of this year, the approval in Europe of the MiCA (Markets in Cryptoassets) regulation is expected, which raises the level of demand for transparency in the processes of issuance, distribution, and marketing of digital assets”, explained Pertusa.
By Audy Castaneda
