Digital currencies fell hard on Monday, as two of the world’s largest digital exchanges halted trading as the market collapsed. With 1.7 million clients, the Celsius Network has temporarily suspended all withdrawals, exchanges, and account transfers due to “extreme market circumstances.”
On Monday, BTC fell to its lowest point since December of 2020, as investors dumped digital currencies amid a larger sell-off in risk assets. According to CoinDesk, BTC, the world’s largest digital coin, fell below $23,000 and was trading around $22,764 in the late morning on Wall Street, a loss of 17%.
In fact, over the weekend and into Monday morning, the whole digital currency market had lost more than $200 billion in value. According to CoinMarketCap statistics, this Monday, the digital currency market cap dipped below $1 trillion – for the first time since February 2021.
What more is behind Monday’s collapse, and what should digital currency investors take away from all of this?
With rising inflation persisting and the U.S. Federal Reserve anticipated to raise interest rates this week to contain prices, macro issues are contributing to the bearishness in the digital currency markets. The Nasdaq, highly involved in tech, fell dramatically last week. BTC and other digital coins have a history of being linked to equities and other risk assets. Therefore, when these indexes decline, so do digital assets.
The pressure has also affected fintech companies that either held digital assets or provided digital coin-related services. Block (SQ)’s stock dropped as much as 10% on Monday, increasing its year-to-date losses to 60%. Shares of online stockbroker Robinhood (HOOD) plummeted 10%, while those of payment network PayPal (PYPL) plunged as much as 5%. In early trading on Monday, shares in digital currency exchange platform Coinbase (COIN) were also down dramatically, tumbling as much as 15%.
This data has prompted a selloff in risky markets worldwide while government bond rates have risen. Stock futures predicted that the S&P 500 index would begin in bear market territory on Monday, down more than 20% from its January high. In Europe and Asia, equity indices have fallen. Investors are rethinking long-held wagers on the trajectory of speculative funds as interest rates in the U.S. continue to rise. Few market sectors have reaped the benefits of low borrowing rates as much as digital currencies have, and they are now quickly dissipating.
BTC took momentum in the fall of 2020, thanks to a rebirth in day trading amid the pandemic and a search for assets that could provide profits if bonds happened to fall to record lows. In November last year, the digital coin reached a new high. Since then, BTC has lost 65% of its value versus the dollar, defying proponents’ forecasts that it would one day replace gold as a hedge against inflation and volatility.
In recent weeks, digital currencies have moved in lockstep with traditional markets but with far more volatility. Amid the sell-off, Celsius (CELH) stated it had suspended withdrawals, swaps, and transfers to better position itself to honor transactions in the future. Jeff Mei, chief marketing officer of ChainUp – a blockchain technology solutions company – stated that “Risky and highly liquid digital currencies are usually the first to be sold in a market selloff.” The lender said that it had triggered a provision in its terms of service that would allow it to stabilize its operations. It didn’t say which provision it was referring to, but it did say it held substantial assets and was striving to satisfy its responsibilities.
Officials have issued a warning about the dangers of digital currency trading. Last week, Treasury Secretary Janet Yellen described digital coins as a high-risk investment for most retirees. SEC (Securities and Exchange Commission) Chairman Gary Gensler also expressed concerns in May.
BTC and other digital coins have rebounded from prior selloffs, including a significant drop in 2018 and early 2019. According to Annabelle Huang, managing partner of digital-asset firm Amber Group, many more people began to trade digital currencies following that crisis, affecting market dynamics. Celsius Network did not specify when consumers would be able to withdraw their deposits again, just that it would “take time.” Meanwhile, governments are keenly monitoring the aftermath of the digital currency meltdown and may take action to safeguard investors.
