Digital Coin Downcast: Vicious Cycle?
The cryptocurrency markets have been a downtrend in recent weeks as investors sold off riskier assets in financial markets in response to high-interest rates and inflation. On Monday (6/13), digital coins fell even further, leaving a market cap of US$1 trillion down from its peak of US$3 trillion in November 2021. Bitcoin, the most valued cryptocurrency, dropped 15% to an 18-month low, trading below US$21,000. Meanwhile, Ethereum, the second-biggest cryptocurrency, plunged 17% dropping below US$1,200. Investors were still startled by the collapse of the Luna token and UST stablecoin back in May, which sent shockwaves throughout the cryptocurrency market, leaving investors with extreme fear. Investors quickly pulled out their holdings in other stablecoins such as USDT, fearing another crash. In the last two days, US$1.6 billion was redeemed off of USDT as investors flee the market and up to US$10 billion in the previous few weeks. In other news, competing crypto lenders Nexo and BlockFi attempted to play down worries about the sustainability of their businesses following Celsius's move to suspend withdrawals. Nexo claimed to have a strong liquidity and equity position and even offered to buy portions of Celsius' loan portfolio, which they rejected. Meanwhile, BlockFi stated that most of its services continue to work correctly and have zero correspondence to the fall of staked ether (stETH), an Ethereum pegged token. The company was unfortunately affected by the downturn; BlockFi cut off approximately 20% of its workers earlier this month in reaction to the dramatic shift in macroeconomic conditions.