Cryptocurrencies continue to crash
Cryptocurrencies, bitcoin in the lead, continued their plunge on Monday in a risk-averse market, destabilizing this still fledgling sector which has benefited in recent years from the easy money created by central banks. The price of bitcoin, which had soared at the end of 2020 and in 2021 to reach a record high of 68,992 dollars, returned on Monday to its level of 18 months ago at less than 24,000 dollars, a drop of 66%.
The entire market has lost two-thirds of its value from its peak and is now worth barely 1,000 billion dollars, estimates the Coingecko site. Cryptoassets are “the first victims of risk aversion among investors, who are worried about the spiral of inflation” in the world, comments Susannah Streeter, analyst at Hargreaves Lansdown. Stock markets around the world fell on Monday, weighed down by data published before the weekend on galloping American inflation, which is weighing on the economy and pushing the Federal Reserve (Fed) to raise its rates.
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Respectability in doubt
Even more than other markets, cryptoassets have benefited from the largesse of central banks, which have flooded investors with liquidity since the start of the COVID-19 pandemic to keep the economy from faltering. In late 2020 and early 2021, bitcoin hit some of its all-time highs just after the US government sent out checks to all taxpayers, suggesting that some took the opportunity to put their money into the cryptocurrency.
Cryptoassets had also benefited from the interest of institutional investors and large tech groups, like Tesla boss Elon Musk, who had placed a small part of his group’s cash in bitcoin. Some of these investors felt the industry had become more respectable and that its last plunge, when bitcoin fell from nearly $20,000 to just over $3,000 between late 2017 and late 2018, could not be repeated.
Although central banks and regulators have repeatedly warned against the volatility and lack of regulation of cryptocurrencies, analysts at JPMorgan bank had taken up the theory of some bitcoin supporters, who see the first cryptocurrency as a digital golden shape. As the issuance of bitcoin is governed by an algorithm and not regulated by a central bank, the asset is protected from a currency issuance policy to support the economy and could theoretically protect against inflation, they explained. .
For some skeptical analysts in the sector, the fall in the price in recent months proves that bitcoin “is not an anti-inflation stock, but a risk asset and not a good one”, summarizes Neil Wilson, analyst at Markets.com.
The fall in the market destabilizes cryptocurrency projects or companies that promised to build decentralized finance (decentralized finance, or DeFi). After the failure of the stablecoin terra, this cryptocurrency whose price was supposed to be pegged to that of the dollar, but which saw its value plunge in May, the setbacks of Celsius worried investors on Monday.
This company, which presents itself as “an interest and loan platform”, offers investors to deposit their “historic” cryptocurrencies, such as bitcoin and ether, and to pay them in exchange for returns much higher than those offered. in the traditional market through loans or investments in new crypto-asset projects. It had attracted the interest of traditional finance, with, for example, an increase in its capital from the Caisse de depot et placement du Québec (CDPQ).
But the assets placed with Celsius had seen their value melt, the fund claiming to manage $12 billion in mid-May, half less than at the end of 2021. “Due to extreme market conditions, we are suspending all withdrawals and transfers between accounts “, announced the platform on Monday. “There is breakage in the crypto space and it is likely to get worse,” warns Neil Wilson.
Proponents of cryptoassets, who sometimes survived the “crypto winter”, as they call the lean years after 2017, say they are keeping their stomachs strong. Changpeng Zhao, head of the largest cryptocurrency purchasing platform, Binance, said at an industry conference that “the failures [de certaines entreprises] were part of the system,” adding it was set to “grow and hire,” as rival Coinbase announced a hiring freeze.
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