Bitcoin and other cryptocurrencies plunged through the weekend and into Monday as high inflation sent investors running for the exits and caused major trading platforms to crash.
Bitcoin was changing hands below US$23,000 at one point Monday morning, down 20% since Friday and enough to drive the value of the world’s dominant cryptocurrency down to its lowest level since December 2020. .
The selloff sparked a major crypto exchange, called Celsius, to stop samples on Sunday evening, which means that investors cannot access their funds. “We are taking this action today to put Celsius in a better position to meet, over time, its withdrawal obligations,” said the exchange, which had about $11 billion in customer deposits on its books.
Celsius was offering depositors returns of over 18% in exchange for keeping their cryptocurrencies on the company’s platform. Another crypto platform, Terra, offered similar returns on customer deposits. But that was before a surge in client withdrawals caused the collapse of Luna, the company’s so-called “stablecoin”, which lost 99% of its value in May.
“They were promoting their services as a better savings account, but at the end of the day, you’re just another unsecured lender,” said Cory Klippsten, CEO of Swan Bitcoin, who is publicly skeptical of to Celsius’ business model for years. “It was yet another bank rush.”
Unlike conventional lenders such as banks which are highly regulated, most cryptocurrency platforms are not backed by deposit insurance such as the Canada Deposit Insurance Corporation, which guarantees deposits with regulated institutions. up to a certain dollar amount. This means that depositors will not necessarily be able to get all their money even if and when trading resumes.
The Quebec Pension Plan, the Caisse de depot et placement du Quebec, is one of Celsius’ funders, having participated in a $400 million investment in the platform last November.
“Celsius has been impacted by very challenging markets in recent weeks, specifically the high volume of customer withdrawals,” a spokesperson for the pension plan told CBC News in a statement. “Celsius is taking proactive steps to meet its obligations to its customers…and has honored its obligations to its customers to date. Our team is monitoring the situation closely.”
Other Crypto Exchanges Crash
Other major crypto exchanges have also had problems coping with the deluge of trading orders, with Binance claiming to have “temporarily suspended” Bitcoin withdrawals.
Other crypto trading platforms have announced staff cuts. Crypto.com – which caused a stir with a glitzy ad featuring Matt Damon extolling the virtues of cryptocurrency which aired during the Superbowl – announced it would lay off about 5% of its workforce, or about 260 people, CEO Kris Marszalek said on Twitter.
This means making difficult and necessary decisions to ensure continued and sustainable long-term growth by making targeted reductions of approximately 260 or 5% of our workforce.
Another cryptocurrency company, BlockFi, announced that it was in the process of laying off 20% of its staff.
“This decision was driven by market conditions that negatively impacted our rate of growth and a rigorous review of our strategic priorities,” the company said. in a blog post.
The selloff brought the total value of all cryptocurrencies below US$1 trillion, a threshold it has not crossed since January 2021. The value of crypto assets peaked at around US$2.9 trillion. dollars in November 2021 before countries around the world begin to see inflation rise to its highest point in decades.
On Friday, the data showed The inflation rate in the United States rose to 8.6% in May, the highest level for more than 40 years. Investors and market watchers had hoped the figure would decline from the 8.3% level it hit the previous month, but instead it went even higher, a troubling sign that efforts to the central bank, such as rate hikes to contain inflation, do not work. .
Ed Moya, senior market strategist at exchange firm Oanda, said the cryptocurrency market was showing signs of capitulation.
“There are fears that everyone got the inflation wrong,” he said in an interview. “You see all the risky assets being sold off, and crypto being the riskiest, it’s under tremendous selling pressure.”
Colin Cieszynski, strategist at SIA Wealth Management in Toronto, said high inflation is causing investors to flee anything deemed risky.
“Cryptocurrencies are still kind of an emerging market that people traded when they felt good, when they were excited when they were willing to take risks, and when they had access to cheap money to do so” , he said in an interview on Monday. .
“A lot of those factors have changed over the past few months…what we’ve seen in the past few days, in particular, and why we’ve had this new selloff is the feeling that silver is getting more expensive.”
Buy and ‘hodl’?
However, not all crypto owners are shaken. Lucah Rosenberg-Lee, a retail investor from Toronto who has owned Bitcoin since 2017, has seen strong gains over the years despite frequent crashes.
Like many in the space, Rosenberg-Lee abides by the “hodl” mindset – a meme about the investment concept of holding which is also an acronym for “hold for dear life”, and never sell. when panic sets in, as he describes it.
He has about half of his investments in cryptocurrency and has no plans to divest.
“I’m just going to keep it as long as I can,” he told CBC in an interview. “I haven’t bought more today, but I think there are a lot of people who will.”
“In terms of a comeback, it’ll come back 100 per cent, that’s about when,” he said.
Stock markets are also selling
Cryptocurrencies weren’t the only market hit by stubbornly high inflation on Monday. Stock markets around the world plunged precipitously as speculation mounts that the US Federal Reserve will have to raise its benchmark interest rate by 75 basis points on Wednesday as it works to rein in runaway cost increases. of life.
Major U.S. markets, including the Dow Jones Industrial Average, S&P 500 and technology-focused Nasdaq, all fell 3-5%.
The decline in the S&P sends the broadest US stock index down more than 20% from its highs, meaning it has met the technical requirement for a bear market.
Things weren’t looking any better in Toronto with the benchmark TSX stock index down 532 points, or nearly 3%.
All 11 subgroups in the index, from energy to banking, technology and healthcare, were down.
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