Bitcoin and other cryptocurrencies fell sharply as investors dump risky assets. A crypto lending company called Celsius is pausing withdrawals for its customers, raising fears of contagion in the broader market.
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Bitcoin fell below $24,000 on Monday, hitting its lowest level since December 2020, as investors dumped crypto amid a broader risk asset sell-off.
Meanwhile, a crypto lending company called Celsius has suspended withdrawals for its customers, raising fears of contagion to the broader market.
The world’s largest cryptocurrency, Bitcoin, briefly fell below $24,000 around 5:00 a.m. ET, according to CoinDesk data, before bouncing back above that level shortly after.
Over the weekend and up until Monday morning, more than $200 billion was wiped out of the entire cryptocurrency market. According to data from CoinMarketCap, the cryptocurrency’s market cap fell below $1 trillion on Monday for the first time since February 2021.
Macro factors are contributing to the bearishness in crypto markets as runaway inflation continues and the Federal Reserve is expected to hike interest rates this week in a bid to control soaring prices.
Last week, US indices sold off heavily, with the tech-heavy Nasdaq falling sharply. Bitcoin and other cryptocurrencies tend to correlate with stocks and other risky assets. When these indices fall, so does crypto.
“Since November 2021, sentiment has changed drastically on the Fed’s rate hikes and inflation management. We may also face a recession as the FED may finally need to address the demand side to control inflation,” Vijay Ayyar, vice president of corporate development and international at crypto exchange Luno, told CNBC.
“All of this suggests that the market has not yet fully bottomed out and unless the Fed is able to take a breather, we are unlikely to see bullish sentiment return.”
Ayyar noted that Bitcoin has fallen about 80% from its recent record high in previous bear markets. It’s currently about 63% below its last all-time high, which it set in November.
“We could see much lower bitcoin prices over the next month or two,” Ayyar said.
Celsius pours fuel on the fire
The crypto market has also been in turmoil since mid-May, when the so-called algorithmic stablecoin TerraUSD, or UST, and its sister cryptocurrency Luna collapsed.
Now the market is concerned about a crypto lending company called Celsius, which said Monday it was pausing all withdrawals, swaps and inter-account transfers “due to extreme market conditions.”
Celsius, which claims to have 1.7 million customers, touts to its users that they can earn an 18% return on the platform. Users deposit their cryptos with Celsius. This crypto is then loaned to institutions and other investors. Users then receive a yield as a result of the revenue Celsius earns.
But the crypto market sell-off has hurt Celsius. According to its website, the company had $11.8 billion in assets as of May 17, up from more than $26 billion in October last year.
Celsius’ own coin, CEL, is down more than 50% in the last 24 hours, according to CoinGecko. Investors are concerned about broader crypto market contagion.
“The Celsius situation is definitely adding fuel to the fire,” Ayyar said.
“Broadly speaking, markets have already been pressured by inflation worries and interest rate hikes, but in crypto, such contagion events could lead to outsized declines as the market today is tightly coupled with a multitude of interconnected protocols and businesses.”