Bitcoin’s price has fallen below the key $20,000 mark for the first time since November 2020, threatening to trigger a new sell-off and deepening the crisis in the digital asset space.
The largest cryptocurrency, which serves as a benchmark for the broader crypto market, plunged below $18,000 on Saturday, down around 14 percent, before recovering slightly. That took it below the top level of the previous crypto markets bull run in 2017, erasing years of gains for long-term holders.
Traditional financial markets were shaken this week after a trio of major central banks led by the US Federal Reserve hiked borrowing costs in a bid to stem soaring inflation. Global equities endured their worst week since the pandemic’s darkest days in March 2020, as traders feared the aggressive action could hurt global growth or even trigger a recession.
The crypto market is under particularly severe pressure as the race for yield, sparked by massive stimulus efforts by central banks and governments at the height of the pandemic, abruptly reverses.
Investors and executives have watched bitcoin price with concern over the past few days, fearing that a dip below $20,000 could lead to forced liquidations of large leveraged bets in the markets, which could further pressure the price and worsen the credit crunch, which has already hit major crypto lenders and traders.
Over the last week, two crypto lending companies, Celsius and Babel Financial, blocked withdrawals, while Three Arrows failed to meet lenders’ demands to raise additional funds to cover bad bets. Last month, Luna and Terra — two tokens popular with crypto traders seeking ultra-high returns — collapsed.
“The dominoes are falling now,” Conor Ryder, an analyst at research and data provider Kaiko, said on Friday. “With more dominoes there is likely to be more price action to the downside, which is likely to snowball with these liquidations.”
Bitcoin has lost more than 70 percent of its value since its peak last fall as investors flee more speculative assets as central banks around the world tighten monetary policy. The total crypto market value has fallen below $1 trillion from a high of $3.2 trillion. The price of ether has also fallen below $1,000, posting a more than 70 percent drop this year. Bitcoin price fell to around $17,600 on Saturday, according to data from CryptoCompare.
Smaller lenders have also reduced or suspended withdrawals, while Toronto-listed crypto platform Voyager inked a deal on Friday to borrow more than $200 million from trading firm Alameda.
“Today’s actions give Voyager more flexibility to mitigate current market conditions,” said Stephen Ehrlich, Chief Executive.
“The credit facilities will only be used by Voyager when necessary to protect customer assets,” he added.
Ryder anticipates that as markets continue to fall, it will put further pressure on other lenders and dealers.
“If we get one more leg down, it’ll become clear pretty quickly who was just clinging for life,” he said.
Additional reporting by Adam Samson in Milan