Bitcoin price drops below $18,300 as selling accelerates

Bitcoin dropped to $18,248 and Ether dropped to $944 mid-afternoon Saturday as selling in the cryptocurrency market accelerates. The world’s two most popular cryptocurrencies are down over 35% in the past week as they both break symbolic price barriers.

The carnage in the cryptocurrency market has in part to do with pressure from macroeconomic forces, including spiraling inflation and a succession of Fed rate hikes. We have also seen these blue chip cryptos track lower stocks. It doesn’t help that cryptocurrency companies are laying off massive amounts of employees, and some of the most popular names in the industry are facing solvency meltdowns.

Here’s how we got here.

Monday

Celsius CEO Alex Mashinsky.

Piaras O Midheach Sportsfile for Web Summit | Getty Images

The week began with cryptocurrency prices plummeting and bitcoin dropping as much as 17% at one point in the day. It looked like crypto winter was here.

In the chaos, Celsius, a major cryptocurrency staking and lending company, shocked the market when it announced that all withdrawals, exchanges and transfers between accounts had been paused due to “extreme market conditions”. In a memo addressed to the Celsius Community, the platform also said the move was designed to “stabilize liquidity and operations”.

Celsius effectively locked up its $12 billion in crypto assets under management, raising concerns about the platform’s solvency. The news spread across the cryptocurrency industry, reminiscent of what happened in May when a failed dollar-pegged stablecoin project lost $60 billion in value and dragged the cryptocurrency industry with it.

Celsius was known for offering users up to 18.63% yield on their deposits. It’s like a product a bank would offer, except without any of the regulatory safeguards.

Those crazy high yields were what ended up being scrutinized.

“This risk certainly looks like it’s just the beginning,” said John Todaro, vice president of cryptographic assets and blockchain research at Needham.

“What I would say is on the decentralized side – a lot of these DeFi protocols, a lot of these positions are over-secured, so you shouldn’t see the underfunding situation that can happen with centralized borrowers and lenders, you can still see a lot of liquidations with that collateral. being sold on DeFi protocols,” Todaro continued.

Tuesday

People watch as the logo of Coinbase Global Inc, the largest US cryptocurrency exchange, is displayed on the Nasdaq MarketSite jumbotron in Times Square in New York, US, April 14, 2021.

Shannon Stapleton | Reuters

Wednesday

Michael Saylor, president and CEO of MicroStrategy, first got into bitcoin in 2020, when he decided to start adding the cryptocurrency to MicroStrategy’s balance sheet as part of an unorthodox treasury management strategy.

Eva Marie Uzcategui | Bloomberg | Getty Images

MicroStrategy CEO Michael Saylor appeared on CNBC Wednesday morning to discuss concerns surrounding his company, which has placed a $4 billion bet on bitcoin. Saylor said the company is also the first and only exchange-traded bitcoin fund in the US, so investing in MicroStrategy is the closest you’ll get to a spot bitcoin ETF.

MicroStrategy used the company’s debt to buy bitcoin, and in March, Saylor decided to take another step towards normalizing bitcoin-backed finance when he borrowed $205 million using his bitcoin as collateral – to then buy more cryptocurrencies.

“We have $5 billion in collateral. We’ve borrowed $200 million. So I’m not telling people to take a highly leveraged loan. What I’m doing, I think, is doing my best to lead the way and normalize the bitcoin-backed funding,” said Saylor, who added that publicly traded cryptocurrency miner Marathon Digital also signed a credit line with Silvergate Bank.

As bitcoin prices plummeted this week, investors feared the company would be asked to offer more collateral for its loan, but Saylor said the fears were overblown.

“Margin calling is a lot of ado about nothing,” Saylor told CNBC earlier this week. “It made me famous on Twitter, so I appreciate that… We feel we have a strong balance sheet, we’re comfortable, and the margin lending is well managed.”

Then, on Wednesday afternoon, the Federal Reserve raised interest rates by three-quarters of a percentage point in its most aggressive hike since 1994. The Fed said the move was in an effort to contain sky-high inflation.

Cryptocurrency prices initially surged on the news as investors hoped we could avoid a recession, but this recovery was short-lived.

Thursday

Bitcoin and other cryptocurrencies are in freefall.

Dan Kitwood | Getty Images

friday to saturday

Bitcoin and other cryptocurrencies dropped sharply as investors dumped risky assets. A cryptocurrency lending company called Celsius is pausing withdrawals for its customers, sparking fears of contagion in the wider market.

Nurfoto | Nurfoto | Getty Images

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