5 Reasons Explaining Cryptocurrency’s Worst Half in Over a Decade – Money Times

Bitcoin grayscale etf
Bitcoin has lost nearly 60% in market cap (Image: Unsplash/Kanchanara)

O Bitcoin (BTC), amid so many ups and downs, lost about 58% in market value in the second quarter of 2022 — a drop that represents its worst quarterly result since 2011. About $1.2 trillion was lost in the crypto asset market.

At 1:54 pm on Friday, for example, the world’s top cryptocurrency was trading below the $20,000 mark at $19,419, up 1.50%. But this is not enough to erase the difficult marks experienced by Bitcoin during this year.

With the market troubled, a number of companies in the industry are laying off employees and the industry is trying to consolidate with the help of acquisitions.

See the 5 reasons that explain Bitcoin’s worst semester in more than a decade

1. Macroeconomic Pressure

The first item, according to CNBC, is the macroeconomic pressure that is affecting markets around the world – and especially in the United States.

There, the Federal Reserve (Fed, the US Central Bank) made two very aggressive increases in interest rates to try to fight inflation, which increased fears of a possible recession in the country.

This has caused US indices and stocks to experience a precipitous fall in recent months. The Nasdaq Composite, which focuses on high-tech assets, dropped 22.4% in the second quarter, the exchange’s worst quarterly performance since 2008.

And the price of Bitcoin is pegged to the US stock price. With the stock market crashing, investors tend to sell risky assets — including cryptocurrencies.

2. Earth CollapseUSD

Another reason that cements the fall of BTC is the algorithmic collapse of stablecoin terraUSD and Luna.

A stablecoin is a type of cryptocurrency that is usually tied to a real-world investment. TerraUSD, for example, should be quoted at the same price as the dollar.

As CNBC explains, “Some stablecoins are backed by real assets such as fiat currency or government bonds. But the UST was governed by an algorithm and a complex system of burning and minting coins. That system failed. TerraUSD lost its peg to the dollar and brought the end of the associated luna token, which became useless.”

This, then, ended up affecting the entire market — and with very significant proportions.

3. Celsius creditor pauses withdrawals

To make matters worse, crypto-lending company Celsius paused customer withdrawals in June.

The company offered a yield of over 18% to users who used Celsius to deposit cryptocurrencies. After that, he loaned the money to people in the market who were willing to pay a high interest rate for the loan.

But, as CNBC cites, the fall in prices put this model to the test. Celsius cited “extreme market conditions” as the reason for pausing withdrawals.

On Thursday (30), Celsius said in a blog post that it “was taking important steps to preserve and protect investments and explore available options”, such as “pursuing strategic transactions and a restructuring of our liabilities, among other avenues”. .

4. Liquidation of Three Arrows Capital

Fourth is the liquidation of hedge fund company Three Arrows Capital (3AC).

O Financial Times reported last month that US-based crypto lenders BlockFi and Genesis have liquidated some of 3AC’s positions, citing people familiar with the matter.

3AC still defaulted on a loan worth more than $660 million from Voyager Digital, which resulted in the company’s liquidation, according to CNBC.

5. CoinFlex-‘Bitcoin Jesus’

Finally, CNBC cites the halt to CoinFlex customer withdrawals, announced last month, due to “extreme market conditions and a customer account that went into negative equity” and a consumer saw his account go into negative equity.

CoinFlex said the client, who claims to be cryptocurrency investor Roger Ver, owes the company $47 million. Ver, who is nicknamed “Bitcoin Jesus” for his evangelical views of the industry, denies that he owes CoinFlex any money.

According to CNBC, “normally, an account that goes into negative equity would have its positions liquidated, but CoinFlex and Ver had an agreement that didn’t allow that to happen.”

“CoinFlex has issued a new token called Recovery Value USD, or rvUSD, to raise the $47 million so it can resume withdrawals and is offering a 20% interest rate to investors willing to buy and hold the digital currency.” says the American newspaper.

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O Money Times publishes informative articles of a journalistic nature. This publication does not constitute an investment recommendation.

About Yadunandan Singh

Born in 1992, Yadunandan approaches the world of video games thanks to two sacred monsters like Diablo and above all Sonic, strictly in the Sega Saturn version. Ranging between consoles and PCs, he is particularly fond of platform titles and RPGs, not disdaining all other genres and moving in the constant search for the perfect balance between narration and interactivity.

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