Bitcoin, Ethereum and other major coins nosedived on Monday evening as the global cryptocurrency market cap fell below the psychologically important $1 trillion mark to $944.9 billion — a decline of nearly 12.5% intraday.
|Cryptocurrency||24-Hour % Change (+/-)||Price|
|Theta Network (THETA)||+5.4%||$1.15|
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Why It Matters: Risk assets were in freefall on Monday, with cryptocurrencies following the trajectory of stocks, which remained under pressure after the latest round of U.S. inflation data.
The S&P 500 closed in the bear territory on Monday and is now down 20% from its all-time high of 4,818 touched in January. The Nasdaq ended Monday 4.7% down at 10,809.23. Futures for the respective indexes were 0.24% and 0.4% higher at press time.
Investors are anxiously looking out for the next two-day Federal Open Market Committee meeting slated to begin Tuesday.
There are expectations the U.S. Federal Reserve will be more aggressive with rate hikes than expected. Goldman Sachs expects 75-basis point rate increases in June and July. Barclays and Jefferies have made a 75 basis point hike prediction for June, reported Reuters.
Data from the CME Group indicates that the market expects a 90.9% probability that rate hikes will be in the 75 basis point region.
On the cryptocurrency side, a fall in liquidity due to tightening is marring investor sentiment, but digital assets are suffering a double whammy.
OANDA senior market analyst Edward Moya said, “Sentiment for cryptos is terrible as the global crypto market cap has fallen below $1 trillion dollars. Bitcoin is attempting to form a base, but if price action falls below the $20,000 level, it could get even uglier.”
GlobalBlock analyst Marcus Sotiriou touched on the insolvency fears surrounding one of the largest cryptocurrency lending platforms, Celsius, in a note on Monday.
“They were heavily exposed to [TerraClassicUSD (USTC)] with around $500 million of client funds, and also lost around $50 million, when DeFi protocol Badger DAO was exploited.”
“The biggest problem Celsius have currently seems to be their $1.5 billion position in stETH – 1 stETH is a claim on 1 ETH locked on the Beacon chain. At the moment, stETH is trading at a discount of more than 5% to ETH, which raises concerns that if clients try to redeem positions, Celsius will run out of liquid funds to pay them back,” wrote Sotiriou.
StETH is an ERC20 token that represents staked Ether in Lido.
Sotiriou said Celsius is taking “massive loans” against its illiquid positions to pay for redemptions by customers but could run out of funds within 5 weeks.
Bitcoin and cryptocurrency investor Lark Davis tweeted that we will begin to see “big liquidations” on decentralized finance platforms.
“This could mean hundreds of millions of [Ethereum] and [Bitcoin] market sold into a weak market driving prices lower.”
We are getting to the point where we are going to start seeing some big liquidations on defi platforms. This could mean hundreds of millions of $eth and $btc market sold into a weak market driving prices lower.
Stay safe guys!
— Lark Davis (@TheCryptoLark) June 13, 2022
Lead insights analyst Will Clemente tweeted that he didn’t catch the absolute bottom and said it was a “great time” to allocate heavily with a broad time horizon.
“I’ve wanted to buy these levels of valuation for 2 years and not going to adjust my targets lower now that we’re here,” said Clemente on Twitter.
Odds are I don’t catch the absolute bottom, which is fine with me. Probabilistically a great time to allocate heavily with a broad time horizon IMO.
I’ve wanted to buy these levels of valuation for 2 years and not going to adjust my targets lower now that we’re here.
— Will Clemente (@WClementeIII) June 13, 2022
Delphi Digital said in a blog on Monday that higher rates and tighter financial conditions have not been “historically kind” to Bitcoin.
Kevin Kelly, an analyst for Delphi Digital, wrote “Bitcoin and the broader crypto market are not isolated from macro risks, most notably those related to global liquidity and financial conditions.”
Bitcoin-Dollar Performance Amid Tighter Monetary Conditions — Courtesy Delphi Digital
“History suggests it isn’t rate hikes that adversely impact BTC as much as tighter liquidity conditions and heightened market volatility associated with strong risk-off sentiment,” Kelly wrote.