On Monday 13 June 2022, there has been a severe fall in cryptocurrency prices. The global market cap crashed by almost $1 Trillion($977 Billion). Bitcoin crashed to almost 1/3rd of its all-time high($69k). A similar fate was shared by Ethereum(ETH), Cardano(ADA) and Binance(BNB).
Impact of The Great Fall
In a dramatic fall which erased almost a trillion dollars from the cryptocurrency markets, global cryptocurrency prices plunged to multi-year lows. Even leading cryptocurrencies such as Bitcoin, Ethereum, Solana, Binance, etc., witnessed a crash of almost one-third of their value in the past week. This crash has sent shockwaves across markets and is a reason that many exchanges have now closed withdrawals.
Celsius: Crypto Withdrawals are Paused
Celsius exchange paused withdrawals due to extreme market volatility. The firm has more than $8 Billion in lending and $12 Billion under asset management. As per company laws across the world, this $12 Billion is their net liability. Amongst users, this move was heavily criticized, and users questioned the company’s ethics and integrity. one of the users said “Not your keys, not your coins”, denoting that any funds with these centralized exchanges are their own(exchange’s) property.
Reason for Fall in Cryptocurrency Prices
Inflation stays the core reason for the fall in cryptocurrency prices. Globally and in top economies the inflation has been at multiple decades high. In the USA, a big market for cryptocurrency, the inflation for the past month has been 8.6% in May. In India, another big crypto market, the inflation was at 7.09% in May.
These inflation worries caused central banks across the world to hike interest rates and thereby sucking liquidity out of the markets. In a report by the United States Federal Reserve, most people favour crypto as an investment. Devoid of liquidity due to rate hikes, common people are struggling to find disposable income. The lack of this disposable income is causing people to withdraw funds from cryptocurrency investments. Therefore, any relief can only be expected after rate hikes stop.
In the USA, these hikes are expected to stop in Dec 2022. For India, the same could stop soon as there is a further scope of just a 25 basis point hike, which is expected to take place within the next couple of months.
2. Regulatory Pressures
There have been severe regulatory pressures in many countries like India, the USA, Japan and other major economies. For instance in India there is a:
- a 30% tax on income from Virtual Digital Assets,
- non-adjustability of profits and losses,
- removal of UPI from exchanges.
Similarly in the USA, there have been debates on:
- stopping Proof-of-Work mining as it consumes a very high amount of energy.
- allegations by the US SEC of violation of ICO rules by Ripple Labs
- allegations of raising funds through non-legal means on Binance(BNB) by US SEC
Put, together these two countries represent a major portion of Global Crypto markets. Any sign of good news from them is necessary to stop bearishness in the markets.
Is any relief expected in Cryptocurrency Markets?
Yes, but there is much to endure before this market starts booming again.
For any sign of relief the following things are to happen:
- Rate hikes have to stop which will allow money to flow into cryptocurrency markets.
- Regulations will have to become rational and not punitive.
- The Exchanges have to be better regulated with stricter rules and clear obligations towards their customers.
- Corporate adoption of cryptocurrency and blockchain technology is required.
Accordingly, there have been some positive developments globally: