This week in coins. Illustration by Mitchell Preffer for Decrypt.
This week’s crypto crash is an ongoing spectacle, with the total market cap of all blockchain assets shrinking to approximately $844.5 billion, a level not seen since the start of 2021.
Bitcoin plummeted well below $20,000 and is trading at $19,095 as of this writing – the market leader has lost a third of its value in the past seven days.
Ethereum is also in the ditch, trading at $994.68 at the time of writing, down 36% over the week.
Other leading cryptocurrencies that have seen price losses of 30% or more this week include privacy coin Monero, which fell nearly 37% to $102.28, Cronos, which fell 30% to $0.10, and Polygon, which fell 33% to $0.36.
Each of the 30 largest cryptocurrencies, with the exception of stablecoins, are down double-digit percentages since last Saturday.
Tether is currently trading slightly below its peg at $0.9988.
“Extreme Market Conditions”
While many crypto skeptics were quick to point out the falling prices, markets everywhere have slipped.
On Wednesday, the Federal Reserve announced a 0.75% interest rate hike — the biggest since 1994. When the Fed hikes rates, many investors tend to dump riskier assets like crypto and tech stocks to prepare for a potential recession.
A report by S&P Global Market Intelligence released the same day revealed that FAANG shares (linked to Facebook, Amazon, Apple, Netflix and Google) have lost a combined $3.328 trillion this year.
Similarly, a closer look at events in the blockchain industry this week reveals that things have been pretty grim.
It started Sunday night when crypto lender Celsius froze all customer withdrawals, swaps and remittances, citing “extreme market conditions” and liquidity issues. That night, the decentralized finance platform’s native CEL token suffered a 70 percent drop in the space of an hour amid a broader market sell-off that took Bitcoin’s price down to 2020 levels.
Celsius’ drop may have catalyzed the market decline this week, as it came just a month after the collapse of another DeFi standard-bearer: Terra. To understand how they compare, just look at Celsius’s business model: Celsius offers over 7% returns for locking stablecoins like USDC and Tether and 7.25% for Polygon, 6.25% for Bitcoin and 6 % for Ethereum. The protocol then lends its pooled tokens at higher rates.
Now, Terra’s dollar-pegged stablecoin UST ran to zero last month after its key use case — 20% yield on Anchor — was hit by market uncertainty. A mass exit followed, resulting in billions of UST being burned to mint LUNA at a rate too fast for the pegging algorithm.
While Celsius hasn’t collapsed nearly as quickly as Terra, a lot of funds have fled recently: In the first half of 2022, the total amount of digital assets locked on the protocol shrank from around $24 billion to $12 billion.
On Wednesday, embattled Celsius CEO Alex Mashinsky broke a three-day silence to praise the strength of the Celsius community, but gave no indication of when users will be able to withdraw funds again.
On Thursday, a Wall Street Journal report indicated that Celsius’ top investors were unwilling to bail out the company.
There was also talk of an “extended crypto winter” across the industry. Both Coinbase and Celsius rival BlockFi are cutting their workforces by up to 20%.
Meanwhile, Binance is, um, hiring.
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