On Saturday night the price of bitcoin, the most valuable cryptocurrency in the world, took a deep dive trading at $17,708, representing a 37.24 percent decline in the last seven days and the first time since November 2020, data from Coinmarketcap shows.
The massive drop also represents an over 70 percent decline from an all-time high of $68,789.63 reached in November 2021.
Ether, the second most valuable cryptocurrency, is also in deep red, crashing from over $4000 peak to $1000 ($905) as of Saturday night.
Other major cryptocurrencies saw declines of different magnitude, with Solana’s SOL dropping 8.6 percent to $29.08, Cardano’s ADA falling 9.1 percent to 44 cents, and Ripple’s XRP declining 6.1 percent to 30 cents over the past 24 hours.
The current crash is reminiscent of the market decline in 2018, when the price of Bitcoin dropped from a peak of nearly $20,000 reached in December 2017, to below $4,000.
After the crash, experts had said the market would not experience a repeat going forward. They projected that stronger market fundamentals drove the growth from 2019 up to 2021. The confidence in the market was pumped by the influx of institutional investors including financial services providers.
The current market rout has seen many crypto companies announcing a shutdown of operations. It is however important to know what is behind the present.
It is beyond crypto market
The crypto market crash is a result of the global market meltdown. The ongoing war between Russia and Ukraine has affected supplies in Europe and other parts of the world, and also impacted the prices of different commodities.
Read also: Why cryptos aren’t allowed, by CBN
Many countries are currently grappling with high inflation. In the US and Europe, inflation has risen to a 40-year high and forced a hike in interest rates. The 0.75 percentage point raise by the US Federal Reserve is seen by experts as the most aggressive increase in nearly 30 years. The Central Bank of Nigeria also raised rates to 13 percent at its last Monetary Policy Committee meeting.
For consumers in the US and other countries, the rate hike means that activities such as buying a house would become costlier as home loan rates will rise. Credit institutions and venture capital firms are some of those being affected due to high loan defaults, and delays in return on investments as a result of inflation.
Higher interest rates make borrowing costs more expensive for people and companies, and that’s raising concerns about an economic recession. This is largely responsible for the recent surge in workers being laid off in the tech industry.
“Too many folks are suffering in silence, absolutely devastated by losing money in the (Spac/Crypto /Equity) markets,” Jason Njoku, founder of Irokotv and an early-stage investor. “Money they were looking to multiply has lost like 70-80 percent of its value. I’m not sure many will actually recover from this fully. Retailers always bear the loss.”
To investors, it means their capital is exposed to more risks. Hence, many investors are pulling out money from assets they consider very risky – cryptocurrency is top on the list – to safer and less risky assets such as treasury bills.
As investors panic, the companies in the crypto market are impacted. The month of June has seen a lot of crypto companies liquidate their operations.
Low market barriers
Efforts by many central banks to create a workable regulation around the crypto market have so far been unsuccessful and it is adversely affecting investors in the market.
While operators have in the past boasted the market was self-regulatory, their efforts have been unable to stop the proliferation of projects that take the form of Ponzi schemes.
David Gerard, author of “Attack of the 50 Foot Blockchain,” said the recent meltdowns show a failure by regulators, who should have put more scrutiny on the industry years ago.
“Bitcoin now below $19,000, a 72 percent crash from its all-time high in November 2021. 1000s of other shitcoins have lost 99 percent of their value and disappeared. And even the other Top 10 “cryptocurrencies” have lost 80-90 percent of their value from their ATH. This Ponzi house of cards is collapsing,” tweeted Nouriel Roubini, a crypto critic and CEO of Roubini Macro Associates.
A poor regulatory environment also means consumers have little or no insurance when most crypto projects come crashing such as the UST and Luna.
On 7 May, UST, pegged against the US dollar, started falling on all crypto platforms across the globe. On 9 May, its value had fallen to 35 cents after a massive sell-off. Luna, another crypto coin that also backs UST (by buying into it if needed), lost all its value and fell to almost zero.
Last week, Celsius which touts itself as a democratise interests income and lensing platform was facing insolvency after it announced it was freezing withdrawals, swaps, and transfers between accounts. Celsius claims its decision was based on extreme market conditions. That decision has now exacerbated the crisis in the market and compelled state securities regulators in Alabama, Kentucky, New Jersey, Texas, and Washington to commence an investigation into the company, a development that doesn’t help confidence in the general market.
Experts are worried about the current crash reversing the gains the market seems to have made in 2018. The crash is not also helping the sentiments of most central banks that feel justified about their opposition to cryptocurrencies.
Countries like El Salvador that made Bitcoin a legal tender have also been impacted. Following the market crash, the country’s holdings are said to be valued at $51.5 million, worth about half of the $104 million the country has invested in the cryptocurrency for its treasury in the 10 months since it made bitcoin legal tender last September.
Some experts say there is hope the market will get back to positive ways should the global economic meltdown be addressed and investors’ confidence return.