In anticipation of the record falls: what is happening in the cryptocurrency market right now and what may happen soon?

14 July 2022

Economic instability in the financial and cryptocurrency markets is causing investors to panic. That, in turn, is leading things to spiral further out of control and become one of the biggest industry crises in recent years.

Bitcoin, which reached its lowest rate since December 2020 on 13 June, continues to fall. New US Federal Reserve policies (quantitative easing, i.e., ending the regulatory authority’s redemption of various assets, which previously served as a supportive measure for the market) and a key rate hike in America are considered to be the causes. The collapse of the LUNA coin and investors’ unsuccessful attempts to withdraw their funds were unsuccessful, which could not fail to affect the exchange rate. As a result, confidence in the stablecoin, which LUNA was the supporting instrument, waned and declined altogether. The overall capitalization of the cryptocurrency market plunged to a trillion dollars; it lost 20% of its total value in a few days. 

Following the BTC plunge, major exchanges like Celsius and Binance suspended withdrawals and other cryptocurrency transactions in principle or withdrawals in Bitcoin. Some experts believe that cryptocurrency exchanges are preventing Bitcoins from being withdrawn because they would not have the liquidity to provide that withdrawal. Liquidity, in this case, is free funds that can be redirected to an asset at any time or withdrawn to third-party wallets, cashed out, and so on. The inability to withdraw bitcoin has caused its exchange rate to fall even faster, leading to Etherium (minus 17%) and Binance Coin (minus 14%). Other cryptocurrencies, including XPR, Dogecoin, Solana, and Polkadot, fell 25-33%. The Celsius platform’s currency is down 50%. Some transactions simply got hung up due to low transfer fees and a lack of ability to confirm the action on the part of the miners. As a result, large investors – like El Salvador, which invested an enriching part of the state budget in bitcoin, or Tesla, which once bought 40,000 bitcoins – lost billions of dollars. 

What’s next for cryptocurrencies? For now, there is no end to the record declines: retail prices are hitting new highs around the world, inflation is not going to come down, and the ever-shifting fiat currency exchange rate inevitably affects blockchain coins. Equity markets are not doing so well either, with major US companies falling in value, causing indexes on those stocks to plummet and panicking investors in ETFs and other index-tracking instruments. Specialists are waiting for a key rate hike and selling off assets. Margin positions are being unwound, borrowing is coming back, and the general market sentiment is slowly but surely turning into a desire to sit out the storm and not lose money. That is not only true for individual unqualified investors but also funds of all sizes.