Last Week’s Crypto Meltdown: How it Happened and What’s Next
We’re not the sort to sugar coat bad news here at FlourishingAI, and we won’t here either: last week was a total train wreck of a week. Let’s review last week’s crypto carnage and take stock of what’s next.
Monday: Bitcoin price 22,494 USD
On the heels of a weekend double-digit fall in crypto asset prices, Monday brough for a shock to the system locking up $12 billion in crypto assets under management. Crypto staking and lending platform Celsius stunned the market when it froze all withdrawals and exchanges, citing “extreme market conditions.” In a memo addressed to the crypto community, Celsius explained the decision was designed to “stabilize liquidity and operations.”
Celsius previously drew scrutiny for offering yields of up to 18.63% on their deposits, with no insurance funds or regulatory safeguards. Concerns around Celsius as the very first of many collateralized Defi protocols spread quickly among the worldwide crypto community, leading to concerns of mass crypto liquidations, driving prices down further.
Tuesday: Bitcoin price 22,120 USD
Crypto markets appeared to stabilize on Tuesday, with bitcoin hovering at around $22,000 and ether at around $1,100. that would be short lived. Investors continued to assess the Celsius fallout while layoff and furlough announcements by crypto companies looking to conserve capital began to circulate.
Coinbase was the first to announce a lay off nearly a 20% of its workforce. Coinbase previously slashed spending, paused promotions, and rescinded job offers in the pursuit of stabilization. “We had the recent inflation report that came out that I think surprised many folks,” explained President and Chief Operating Officer Emilie Choi. “it feels like the most prudent thing to do right now”.
Crypto.com followed quickly announced a 260 staff reduction, with Gemini soon following with a 10% reduction of its workforce. Crypto asset lending firm BlockFi announced a lay off totalling a fifth of its staff. While companies taking advantage of news shocks to downplay reductions in workforce is a commonplace occurrence, the scale of reductions for all three firms are unprecedented.
Wednesday: Bitcoin price 22,562 USD
Crypto prices rallied slightly, but that proved to be dead cat bounce. On Wednesday afternoon, the Federal Reserve raised its benchmark interest rate three-quarters of a percentage point in an attempt to curb inflation. The raise was the Fed’s most aggressive in 25 years.
Meanwhile, CEO Michael Saylor appeared on financial television programs to address concerns Wednesday morning to discuss concerns around his firm, MicroStrategy (a large Bitcoin asset holder). MicroStrategy has used company debt to purchase bitcoin, and in March, Saylor decided to take another step toward normalizing bitcoin-backed finance when he borrowed $205 million using his bitcoin as collateral — to then buy more of the cryptocurrency. Purchases reached $4 billion.
“The margin call is much ado about nothing” according to according to Saylor . “We feel like we have a fortress balance sheet, we’re comfortable, and the margin loan is well managed.” Meanwhile, MicroStrategy was not alone in leveraged crypto asset buys. Publicly traded crypto miner Marathon Digital purchased crypto via a credit line with Silvergate Bank.
Thursday: Bitcoin price 20,369 USD
Despite the public assurances, Bitcoin followed an equities selloff on Wall Street, falling to $20,000. Bitcoin’s price retrenched to its value in 2020.
“I think that we’re in a long drawdown period here,” Jill Gunter, Espresso Systems co-founder & chief strategy officer, told CNBC’s Squawk on the Street. “I think that we’ve taken the elevator down, and I think that we, as an industry, are going to have to take the stairs back up and climb out by building real utility,”
Several influencers and financial media personalities began using the team “healthy washout.” Crypto platforms continued to field insolvency questions while platforms Voyager and CakeDefi proceeding to extend lines of credit and announced repeatedly to their communities that exposure to Celsius was minimal to non-existent.
Friday and Weekend: Bitcoin price 17,601.58 USD
Carnage in the crypto markets accelerated, bitcoin fell as low as $17,601.58 (matching 2017 prices). Going into the (US) holiday weekend, investors remained anxious due to a torrent of negative crypto headlines and negative economic data driving prices to new lows.
“We had financial instability because of this opaque leverage, you just couldn’t tell where all these risks were building up,” Paxos CEO & Co-Founder Charles Cascarilla told CNBC. CEO Alex Mashinsky had planned to be Celsius’ long running live weekly “ask me anything” (AMA) broadcast before it was canceled minutes before its scheduled time. The lack of announcements drove open speculation the days of unsustainable high yields have now given way to waves of insolvency:
It’s Monday, Now What? Bitcoin price 19,920 USD as of this writing.
Bitcoin hit an all time high of $69,044.77 on Nov 10, 2021. That’s a 71% drop in seven months. Bitcoin may still has more downside potential, though portfolio solutions like Flourishing AI have helped investors avoid the steep drops most have faced (the average Flourishing AI portfolio is averaging 16% down versus 71%).
Queue the analysts. Yuya Hasegawa, a crypto market analyst at Japanese bitcoin exchange Bitbank questioned whether “Bitcoin’s weekend dip was, to put it simply, not deep enough. The macro environment has not really changed from last week’s FOMC meeting.” Meanwhile, one of Celsius Network’s earliest investors has proposed a recovery plan to help the beleaguered company:
The bottom line? If Bitcoin and other crypto assets break significantly lower than 20,000 USD, we believe it’s likely another wave of liquidations is coming as markets suss out who is collateralized and who’s swimming naked. If trading continues sideways, big liquidations may be done and a base is forming (note: not financial advice).
