CRYPTO  

The global virtual currency sell-off, the currency circle “Lehman crisis” strikes?

The virtual currency sell-off storm continues.

On the afternoon of June 18, Bitcoin once fell below $19,000 per piece, continuing to hit a new low since December 2020.

Bitcoin is down 33% in the past seven days, Ethereum is down 36% and Binance Coin (BNB) is down 27%.

Following the mid-May crisis of stablecoin UST and its sister token Luna, Celsius, a cryptocurrency lending giant with 1.7 million users, is also on the brink.

Celsius announced on Monday that it was suspending all withdrawals, swaps and transfers between accounts due to “extreme market conditions.”

The market is worried that Tether Limited, the world’s largest stablecoin issuer, as a shareholder of Celsius, will be dragged into the water, or it will trigger a “Lehman crisis” in the currency circle.

Global virtual currency sell-off continues!

Bitcoin drops 33% in 7 days

At about 4 pm on June 18, Bitcoin fell below $19,000 per piece, continuing to hit a new low since December 2020.

As of 9 p.m. on June 18, the price of Bitcoin was about $19,171, with a 24-hour drop of 7.41% and a drop of 33% in the past seven days.

Bitcoin has lost about 70% of its value since hitting an all-time peak of $69,000 in November 2021.

The second-largest cryptocurrency, ether, also tumbled 7.3 percent on the day to $1,000, its lowest level since January 2021.

It is down nearly 80% from its previous high.

According to Coinglass data, as of 23:00 on June 18, a total of 77,000 people in the digital currency field had been liquidated in the past 24 hours, with a total liquidation amount of US$270 million.

Former BitMEX CEO Arthur Hayes previously said that $20,000 and $1,000 represent price support levels for bitcoin and ethereum, respectively, which, if breached, would trigger “enormous selling pressure.”

In addition, Bitcoin analyst Sam Callahan of Bitcoin exchange Swan also believes that based on the experience of previous bear markets, Bitcoin may fall by more than 80% from its all-time high.

This means Bitcoin will drop to $13,800.

According to CNN, some analysts said that falling below the $20,000 mark would be a sobering milestone for a market that was booming during the epidemic.

“A break below $20,000 would be a huge psychological blow and could send bitcoin further down,” Craig Erlam, senior market analyst at foreign exchange firm Oanda, said in a note Tuesday.

Compared with other assets, the bear market of virtual currency is especially cruel.

According to CoinMarketCap data, in November last year, the total market value of the entire cryptocurrency market in November was $3 trillion, while the current total market value is about $844 billion, and $2.16 trillion has been “evaporated” in just seven months. Shrinked by more than 70%.

It is worth mentioning that the price of virtual currencies led by Bitcoin continues to dive, which has also hurt many investors in the currency circle.

Compared to spending $1.5 billion to buy bitcoin in early 2021, Tesla has lost nearly $600 million on its investment.

Zhao Changpeng, the founder of Binance Exchange who was once the “richest man in China”, lost 85.6 billion US dollars, or about 577 billion yuan, in about half a year, a drop of 90%.

The “Lehman Crisis” in the currency circle kicked off?

Why have virtual currencies represented by Bitcoin been collectively sold by investors recently?

On a macro level, traders are dumping riskier investments, including volatile crypto assets, as the world’s major central banks raise interest rates to control inflation.

Perhaps more importantly, some investors were unable to withdraw funds from some cryptocurrency exchanges this week, exacerbating investor concerns about the liquidity of virtual currencies.

Binance, the world’s largest cryptocurrency exchange, suspended bitcoin withdrawals for several hours on Monday, saying some transactions were “stuck” leading to a squeeze.

In addition, Celsius, the cryptocurrency lending giant with 1.7 million users, also announced on Monday that it will suspend all withdrawals, swaps and transfers between accounts due to “extreme market conditions.”

Celsius told its 1.7 million customers that it had decided to “stabilize liquidity and operations while we take steps to protect assets.” Celsius did not say when the exchange would reopen, and the bank said that before allowing customers to withdraw deposits again, it “needs to a period of time”.

As of May 17, the company had assets worth $11.8 billion, according to the company’s website.

Market analysis believes that although it has dropped significantly compared with more than 26 billion US dollars in October last year, Celsius is still regarded as a “currency bank” by investors in terms of scale.

According to media reports, Celsius is not to be underestimated in the industry, claiming to have 1.7 million customers and advertising to users that they can earn 18% through the platform.

Users deposit their cryptocurrencies at Celsius, these cryptocurrencies are then lent to institutions and other investors, and users then receive revenue from the income earned by Celsius.

What’s more, according to Celsius CEO Alex Mashinsky, they are involved in nearly every major “decentralized finance (DeFi)” protocol.

This means that Celsius, a member of the banking industry in the currency circle, has also been on the brink of danger following the crisis of the stablecoin UST and its sister token Luna in mid-May.

Some investors worry that if such large crypto banks fail to reopen and allow withdrawals, there will be a ripple effect across the cryptocurrency market.

The market is more concerned about whether Tether Limited, a shareholder of Celsius, the issuer of the world’s largest stable currency Tether, will be dragged into the water.

If the Celsius crisis is compared to the “Bear Stearns incident” in the currency circle, then Tether Limited is a Lehman-level existence in the currency circle.

Tether Limited is the largest operator in the $180 billion stablecoin space, playing a key role in facilitating transactions across the cryptocurrency market, as well as providing a link to the mainstream financial system, equivalent to the currency circle financial infrastructure.

The so-called “stablecoin” is a cryptocurrency whose market value is linked to a “stable” reserve asset such as the U.S. dollar or gold, and serves as a pricing anchor and a medium of exchange in the cryptocurrency market.

Long one of the most scrutinized companies in the industry, Tether is now facing pressure from regulators, investors, economists and a growing number of skeptics.

There are fears that if something goes wrong with Tether, it could trigger a domino effect that could lead to an even bigger crash.

“Tether is really the lifeblood of the crypto ecosystem. If it imploded, it would bring down the whole wall,” said Hilary Allen, a finance expert at American University.

The cold winter of the currency circle

Since the beginning of this year, the currency circle has continued to stage super storms.

On May 12 this year, the LUNA coin, which was once referred to as “Maotai in the currency circle”, plummeted by more than 99%. This cryptocurrency, which once reached a maximum of 119.5 US dollars, fell to less than 3 cents on the same day, tens of billions of dollars. Dollar wealth is near zero.

According to a CNN report, the virtual currency industry is laying off workers to survive the “winter.”

Coinbase, the largest U.S. cryptocurrency exchange, said on Tuesday it would cut about 1,000 jobs, or 18 percent of its workforce.

The reason is fears of an impending recession and a “crypto winter.”

Its latest financial report shows a net loss of $430 million in the first quarter of 2022, compared with a net profit of $840 million in the previous quarter.

The company’s stock has been battered since its listing on the Nasdaq last April.

Once its peak market value was nearly $100 billion, it is now less than $12 billion.

In fact, multiple peers have announced massive layoffs in recent weeks, including cryptocurrency lending platform BlockFi, cryptocurrency trading platform Crypto.com, Gemini, and Argentina-based exchange Buenbit.

Among them, Buenbit laid off 45% of its employees in May.

However, according to foreign media reports, as of now, the big guys in the currency circle are not too worried about the plunge in the currency circle.

And rightfully so, they say, a bear market in crypto is different from a bear market in stocks: the lows are more extreme, but so are the highs.

“Bear markets in cryptocurrencies typically drop 85% to 90%,” said Jason Yanowitz, co-founder of the cryptocurrency research platform Blockworks.

He also said that in the past decade, Bitcoin has experienced two long crypto recessions, losing more than 80% of its value, but Bitcoin has also rebounded time and time again.

During the 2017-2018 crypto bear market, Bitcoin plunged 83%, from $19,423 to $3,217.

But by November 2021, the price of Bitcoin will exceed $68,000 per piece.

On Friday (June 17) local time, the Federal Reserve warned of the “structural fragility” of stablecoins in its semi-annual monetary policy report to Congress.

The report warns that the recent slump and volatility in stablecoins and other digital asset markets underscores the structural fragility of this fast-growing sector.

The report warns that stablecoins that are not backed by safe and sufficient liquid assets and are not subject to relevant regulatory standards will pose risks to investors and may have implications for the financial system, including increasing the probability of disruptive runs.

At the same time, the lack of transparency in the risk and liquidity of assets backing stablecoins may further exacerbate these vulnerabilities.