[Asia Economy Reporter Jeong Hyunjin] The global cryptocurrency market capitalization has fallen below the $1 trillion mark for the first time in 1 year and 4 months. Amid macroeconomic factors such as high inflation and interest rate hikes causing a recession across global financial markets, trust issues in the cryptocurrency lending market have surfaced, leading to a continued sell-off.
According to the global cryptocurrency market tracking site CoinMarketCap, Bitcoin was trading in the $22,000 range as of the morning of the 14th. Bitcoin’s price, which dropped more than 18% in a single day, continues its downward trend. Bitcoin falling below the $23,000 level is the first time in about 1 year and 7 months since December 2020. Since the beginning of this year, Bitcoin’s value has halved, and another major cryptocurrency, Ethereum, has also lost two-thirds of its value this year.
As a result, the global cryptocurrency market capitalization has dropped to $937.38 billion, falling below the $1 trillion mark. Foreign media reported that this is the first time in 1 year and 4 months since February last year that the $1 trillion threshold has been breached.
The reason for such a crash in the cryptocurrency market is due to both macroeconomic factors and internal issues within the crypto market. The U.S. Consumer Price Index (CPI) hit its highest level in 41 years, raising expectations that the U.S. Federal Reserve (Fed) will accelerate its tightening monetary policy, increasing anxiety over risk assets like cryptocurrencies.
The bigger problem is that trust in the cryptocurrency market itself is breaking down due to a series of incidents starting with the collapse of the Korean-origin stablecoin TerraUSD and its sister coin Luna, followed by the withdrawal suspension of the cryptocurrency lending platform Celsius. After the Terra incident caused cryptocurrency prices to plummet, forced liquidation of cryptocurrencies held as collateral in the lending market led to a vicious cycle of further price declines.
In particular, Celsius’s complete suspension of cryptocurrency withdrawals and transfers citing “extreme market conditions” dealt a blow to the crypto market. The company had been advertising that individual investors could deposit their cryptocurrencies and lend them to institutional investors to earn an 18% profit, similar to earning interest on a bank deposit. As of May, Celsius had loaned over $8 billion to customers and managed $12 billion in assets. The sudden halt of financial transactions by Celsius caused the price of its native token CEL to plummet, raising fears that a collapse similar to Terra’s could occur again.
The downward trend in the cryptocurrency market, plagued by overlapping negative factors, is expected to continue for the time being. Vijay Ayyar, Vice President of cryptocurrency exchange Luno, told CNBC, “There is a possibility that Bitcoin prices will fall further over the next 1 to 2 months.”
Meanwhile, BlockFi, a rival cryptocurrency lending platform supported by PayPal founder Peter Thiel, announced on the same day that it would cut 20% of its staff due to the Bitcoin price crash. Jack M. Ablin, CEO of BlockFi, stated that the situation is unrelated to Celsius and that all platforms and products will operate normally with the goal of achieving profitability.
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