Here's What's Behind the Recent Cryptocurrency Plunge

The market cap of cryptocurrencies has fallen below $1 trillion from a peak of $3 trillion in November 2021. The sell-off in cryptocurrencies comes as investors dump the riskiest assets amid macroeconomic headwinds and Fed rate hikes. Market behavior on Monday showed investors' distrust of cryptocurrencies and the platforms they support.

At the time of writing, bitcoin was down about 11.2 percent over the past 24 hours, hitting an 18-month low, while ethereum was down about 7.7 percent, according to data from CoinMarketCap. Compared with a week ago, the two fell by 24% and 30%, respectively.

As the cryptocurrency market plummeted, the floor prices of many top NFTs also fell, and NFT trading volumes surged.

There is no doubt that the entire Web3 market is in a mess right now. What is the reason that led to the collective plunge of cryptocurrencies this week?

The Contagion Effect of the Celsius Crash

The most direct event that has caused market volatility in the near future is probably the crisis of Celsius Networks. Celsius, which raised a significant amount of venture capital last year, crashed its token CEL this week and then halted withdrawals.

Investors have grown concerned for weeks that cryptocurrency staking and lending platform Celsius is in a liquidity crunch. Celsius provides users with a deposit rate of up to 18.63%. It's like a product offered by a bank, except without any regulatory safeguards. Celsius’ CEL token fell from over $7 to about 33 cents last year, before dropping more than 50% over the past week.

Meanwhile, Celsius' $26 billion in client funds has more than halved since October.

Celsius stated, “Due to extreme market conditions, we are today announcing that Celsius is suspending all withdrawals, exchanges and transfers between accounts. We are taking this action today to allow Celsius to better meet its withdrawal obligations.”

Binance Suspends Bitcoin Withdrawals

Binance also hit the pause button on Monday. The world's largest cryptocurrency exchange suspended bitcoin withdrawals for more than 3 hours. While Binance CEO Changpeng Zhao said the fix would only take half an hour, he later revised his estimate, saying it would take "a little longer" than initially expected.

Three hours after suspending BTC withdrawals, the exchange announced that users can request withdrawals over the bitcoin network, while explaining what caused the problem.

Binance tweeted: “Due to low TX fees, a batch of BTC transactions got stuck, resulting in a backlog of BTC network withdrawals.”

Changpeng Zhao assured clients that all funds were “SAFU.” This refers to the Secure Asset Fund for Users, which was established by Binance in 2018 to protect users’ assets.

During the suspension of withdrawals, Changpeng Zhao tweeted that bitcoin holders could still withdraw their bitcoins on other networks such as CEP-20.

Big Layoffs Ahead of "Cryptocurrency Winter"

BlockFi, a start-up backed by Peter Thiel, has joined a growing list of crypto companies laying off staff to cut costs.

On Monday, BlockFi announced that it would lay off about 20% of its workforce. Before the layoffs, the company's headcount had grown from 150 at the end of 2020 to more than 850.

BlockFi CEO Zac Prince said on Twitter that BlockFi has been affected by "dramatic changes in macroeconomic conditions," which have had a "negative impact" on growth.

In the crypto space, layoffs seem to be a regular occurrence.

Late last week, Crypto.com announced it was cutting 260 jobs, just seven months after it paid $700 million for the naming rights to the NBA's Los Angeles Lakers home stadium.

Earlier this month, Gemini said it would cut 10 percent of its workforce, warning that the industry was in a "period of contraction" dubbed the "crypto winter."

Meanwhile, Coinbase has extended its hiring pause for the “foreseeable future” and plans to cancel some job offers.

Source: CNBC

https://www.cnbc.com/2022/06/13/the-crypto-industry-just-had-one-of-its-worst-days-ever.html