Bitcoin’s selloff, sparked by a reversal of the buying mania that drove it higher, has now become the fourth-deepest in the cryptocurrency’s 13-year history.
On Monday, bitcoin fell 15% to $23,250.72, according to Dow Jones Market Data. That is down 20% from Friday, and 66% from its November high of $67,802.30.
Bitcoin’s slide since November has contributed to a roughly $2 trillion wipeout in the broader market. Crypto’s total market capitalization, which peaked in November at nearly $3 trillion, stood at around $975 billion Monday evening, according to data provider CoinMarketCap.
There are some clear reasons why bitcoin is selling off now. For one thing, its moves have been generally more aligned with other risk assets, like tech stocks, as professional traders have joined the crypto market in bigger numbers. Speculative assets like crypto have been falling with inflation and the efforts of central banks to combat that through higher interest rates, a dynamic that makes risk stocks less attractive than safer assets. On Friday, the US inflation index hit 8.6%, dragging down the stock market.
As turbulence rippled through the crypto market over the weekend, a widely used cryptocurrency froze customer withdrawals. Celsius Network LLC said it was pausing all withdrawals, swaps between cryptocurrencies and transfers between accounts “due to extreme market conditions.” As of May, the lender managed $11 billion in user assets, according to its website.
Later, a major crypto exchange, Binance, halted bitcoin withdrawals. The company said at 8 am ET it was a technical issue and expected them to resume in 30 minutes. The withdrawals resumed just before noon New York time.
Companies in the sector have increasingly been resorting to layoffs amid the selloff. A Celsius competitor called BlockFi said Monday that it would cut 20% of its staff of about 850 employees, according to a statement from Chief Executive Zac Prince. “Like many others in Tech, we’ve been impacted by the dramatic shift in macroeconomic conditions, which have had a negative impact on our growth rate,” Mr. Prince wrote on Twitter. On Friday, Crypto.com said it would cut 260 employees, about 5% of its staff.
Beyond bitcoin and cryptocurrencies, publicly traded stocks in the crypto sector were getting punished, too. MicroStrategy Inc.
fell 25% to $152.15. Coinbase Global Inc.
was down 11% to $52.01. Riot Blockchain Inc.
dropped 10% to $4.65.
MicroStrategy, a business-software company in Virginia, has latched its fortunes to bitcoin, a strategy driven by company founder and chief executive, Michael Saylor. The company has converted all its cash reserves into bitcoin, has issued debt to buy more bitcoin and has borrowed funds to buy even more bitcoin.
It had 129,000 bitcoins on its balance sheet as of the end of the first quarter, the company reported. Nearly 96,000 of them hadn’t been pledged as collateral. The rest, though, could be subject to margin calls depending on how deep the selloff goes.
The company hasn’t yet received any such calls, Mr. Saylor said. “We don’t expect to receive a margin call, and the company has plenty of additional collateral should we need to post more,” he said in an email.
Individual investors, however, have been receiving margin calls. About $1 billion of collateral pledged by about 260,000 retail traders has been liquidated over the past 24 hours, according to data provider CoinGlass.
The renaissance in day trading during the pandemic and the hunt for assets that could score returns while bond yields plumbed historic lows, led bitcoin to take off in the fall of 2020. The cryptocurrency surged to record highs in November last year. Since then, it has slumped 65% against the dollar, belying predictions of proponents who said the cryptocurrency could replace gold as a hedge against both inflation and turbulence in broader markets.
“Risky and highly liquid cryptocurrencies are usually the first to be sold in a market selloff,” said Jeff Mei, chief marketing officer at blockchain technology solutions provider ChainUp.
Incidents like Celsius halting withdrawals, and the earlier collapse of the stablecoin terra USD, tend to stoke fear and create a lack of confidence in the market, said Leah Wald, the co-founder and chief executive at asset manager Valkyrie Investments. It reverses the kind of unbounded enthusiasm traders have had for crypto, a dynamic nicknamed “hopium,” that has driven cryptos since 2020.
“Selling is created when there’s a lot of ‘hopium,’ and the past year there’s been a lot of ‘hopium’ and euphoria over projects that didn’t have much of a base behind them,” she said.
None of this should be surprising, she said. Crypto is following the exact same path that other mania-driven assets have taken, like tech stocks in the dot-com era or silver in the days of the Hunt brothers. “All assets at the end of the day follow the same trend,” she said. “As much as we think crypto is a new asset class, it’s not.”
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Corrections & Amplifications
Bitcoin’s selloff is its fourth-deepest in the cryptocurrency’s 13-year history. An earlier version of this article incorrectly said it was bitcoin’s third-deepest selloff. (Corrected on June 13)
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