Crypto investors and executives are bracing for more pain after Bitcoin’s price fell over the weekend, compounding the credit crunch that has been hitting the industry.
Bitcoin, the world’s most actively traded cryptocurrency, fell as low as $17,628 on Saturday before recovering, according to data from CryptoCompare.
Investors and executives have watched the token’s price with concern, fearing that a drop below $20,000 could lead to forced liquidations of large leveraged bets.
Bitcoin, which acts as the main benchmark for the broader cryptocurrency market, has come under acute pressure in recent months as central banks and governments transitioned from a prolonged period of extremely low interest rates to a fight against rising inflation.
“Crypto is in for a dark winter as the free money era draws to a close this weekend with another brutal sell-off across the board. Risk assets are all thrown out the window,” said Dan Ives, managing director and senior equity analyst at Wedbush Securities.
The hunt for yield has shifted as major central banks, led by the US Federal Reserve, ramp up borrowing costs and end pandemic-era efforts to stimulate economic growth.
Traditional financial markets were shaken this month as traders feared the aggressive action could hurt global growth or even trigger a recession. Last week was the worst for global equities since the pandemic’s darkest days in March 2020.
Bitcoin is down about 70 percent from its all-time high of nearly $70,000 last November to below $20,000. Ether, another actively traded token, fell as low as $900 over the weekend, meaning its price is down four-fifths from its peak late last year.
That has contributed to an escalating credit crunch in the digital asset industry that threatens to engulf many of its key players.
Last month, so-called stablecoin Terra and its sister token Luna — popular with crypto traders looking for ultra-high yields — collapsed, two lending platforms prevented depositors from withdrawing their assets, and crypto hedge fund Three Arrows came down not following the wake of the lenders’ demands.
The weekend’s sell-off caused more than $600 million worth of leveraged positions to collapse, according to data from Coinglass.
Analysts expect these losses to further strain the balance sheets of traders and lenders as many users have borrowed against their crypto asset holdings.
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However, Dogecoin, the “joke” cryptocurrency, rose after Elon Musk, chief executive of electric carmaker Tesla, posted a tweet about his continued support for the token.
Nayib Bukele, the President of El Salvador and a bitcoin champion, urged investors on Sunday to “stop looking at the chart and enjoy life.” Bukele, who spearheaded the introduction of bitcoin as legal tender in El Salvador last year, has dismissed IMF warnings about the policy.
Troubles in the crypto market have spread to corners of the mainstream financial market. US-listed MicroStrategy, a tech group that is a major investor in Bitcoin, is down nearly 70 percent this year. Shares of crypto miners, who earn fees for validating crypto transactions, have also fallen sharply.
Crypto exchanges — platforms sitting squarely in the teeth of the relentless market crash — have been forced to roll back hiring plans. The list includes Coinbase, Gemini, Mercado Bitcoin — a popular exchange in South America — and Celsius’s rival lender BlockFi, which shed 20 percent of its staff this month.
Additional reporting by Adam Samson in Milan