Bitcoin’s Record Breaking Losses Accelerate as It Loses More Money

Higher interest rates and bad news cycles have been detrimental to cryptocurrency assets. On June 15, the Federal Reserve increased its main interest rate by three-quarters percent – the largest increase since 1994. Central bankers also signaled that they would continue to rise aggressively in their fight against inflation.

Alkesh Shah (head of digital assets strategy and cryptocurrency at Bank of America Corp.) stated in a Friday note that “investors continue to position defensively after last year’s liquidity driven digital asset bull market.” Although it is painful, investors will be able to shift their focus to projects that have clear roads to cash flow and profitability rather than revenue growth.

More signs of stress were evident after the Terra blockchain collapse last month, and they worsened this week due to the recent withdrawal halting decision by Celsius Network Ltd., a cryptocurrency lender.

Three Arrows Capital, a cryptocurrency hedge fund, suffered significant losses and announced it was considering asset sale or bailout. Celsius followed Celsius’s lead on Friday, with Babel Finance following in Celsius’s steps. Glassnode says that even long-term holders who had avoided selling are now under pressure.

Teong Hng, chief executive at Satori Research, a Hong Kong-based cryptocurrency investment company, stated that “After Celsius”, the last few days have been focused on Three Arrow Capital, and Babel Finance.” After suffering massive losses from the cryptocurrency crash this round, Su Zhu, founder of 3AC, seems to be missing in action.

Stablecoins, a cryptocurrency asset that is tied to the value of fiat currencies like the US Dollar, have also failed.

According to Bank of America’s Shah, the top four stablecoins had exchange net outflows that were 4.5x greater than the previous week. Shah has charted net flows in eight of the ten prior weeks. He said that cryptocurrency traders often rely on stablecoins to move funds around the ecosystem, without having to exit into traditional currencies. Therefore, persistent outflows suggest that investors are still defensive.

According to Mike McGlone (an analyst at Bloomberg Intelligence), historical data suggests that bitcoin could find support around the US$20,000 mark. Previous sell-offs show where the token finds points of resilience.

He said that Bitcoin could “build a base about $20,000 like it did at approximately $5,000 in 2018-19, and $300 in 2014-15,” in a Wednesday note. “Declining volatility, rising prices are signs of the maturing digital-store-of-value.” 

The digital currency is still close to its December 2020 low, which was US$17.589. It was as low as US$13222 in the previous month of that year.

Today, the cryptocurrency market is only a fraction of what it was in late 2021 when bitcoin traded at close to US$69,000 and traders invested cash into the speculative investment of all kinds. According to CoinGecko pricing data, the total market cap for cryptocurrencies stood at US$870 trillion on Saturday. This is a decrease of US$3 trillion in November.