Bitcoin, the world’s largest cryptocurrency, traded just below the symbolic $20,000 level in the early hours of London trading.
Bitcoin fell to $17,592.78 on Saturday, falling below $20,000 for the first time since December 2020. It has lost almost 60% of its value this year and 37% this month alone as a result of the latest cryptocurrency sector crash.
Its fall follows problems with several major players in the industry. Market participants said that further declines could have a domino effect as other crypto investors are forced to sell their holdings to meet margin requirements and cover losses.
Cryptocurrency hedge fund Three Arrows Capital is exploring options, including selling assets and bailing out another firm, its founders told the Wall Street Journal in an article published Friday, the same day Asian crypto lender Babel Finance said it would suspend withdrawals.
Cryptocurrency lender Celsius Network said this month that it would suspend customer withdrawals. In a blog post on Monday, Celsius said it would continue to work with regulators and officials, but would suspend customer Q&A sessions. Celius also said its liquidity and operations “will take time” to stabilize.
“There is a lot of credit coming out of the system, and if lenders have to absorb losses from Celsius and the Three Arrows, they will reduce the size of their future loan portfolios, meaning that the total amount of credit available in the crypto ecosystem is much reduced,” said Adam Farthing, Chief risk office of B2C2 crypto-liquidity provider in Japan.
“To me, this is very similar to 2008 in terms of how the domino effect of bankruptcies and liquidations can come about,” Farthing said.
Smaller tokens, which usually move in tandem with Bitcoin, have also been affected. Token #2 Ethereum was worth $10,752, dropping below its symbolic level of $1,000 over the weekend.
The fall in crypto markets coincided with a decline in equities, as U.S. stocks experienced their biggest weekly percentage decline in two years due to fears of rising interest rates and the growing possibility of a recession.
Bitcoin movements have generally followed the same pattern as other risky assets such as tech stocks.
According to price website Coinmarketcap, the total cryptocurrency market capitalization is approximately $877 billion, up from a peak of $2.9 trillion in November 2021.
The drop in stablecoins — a type of cryptocurrency designed to maintain a stable value — also suggests that investors are pulling money out of the sector as a whole.