The crypto market tumbled below $1 trillion on Monday, down from a peak of close to $3 trillion just seven months ago.
The latest collapse came as yet another major crypto platform suffered operational issues that prevented customers from accessing their funds.
The crash is reminiscent of similar market corrections in 2013 and 2017, which saw bitcoin’s value drop by more than 80 per cent. With just over 60 per cent wiped from BTC’s November price peak, and with the market still yet to settle, some analysts fear more losses may be on their way.
Bitcoin price crash: What caused it?
The latest sell-off appeared to begin when US inflation data was released on Friday, revealing a rate of 8.6 per cent year-on-year in May – an unexpected increase from April that caused investors to shift their funds from traditionally riskier assets like crypto and tech stocks.
These losses were then compounded by the announcement from crypto lending platform Celsius that it was halting customer withdrawals on Monday, citing “extreme market conditions”. It contributed to bitcoin losing more than 15 per cent of its value in just 24 hours, while also causing Celsius’s own cryptocurrency to plunge by more than 80 per cent in price.
Marcus Sotiriou, an analyst at the UK-based crypto broker GlobalBlock, told The Independent that current specultion centred around Celsius being “irresponsible with client funds”.
He claimed that there are “concerns that if clients try to redeem positions, Celsius will run out of liquid funds to pay them back,” adding: “They are taking massive loans against their illiquid positions to pay out their customer redemptions, but they could run out of funds within 5 weeks.”
Leading crypto exchange Binance also temporarily halted bitcoin withdrawals, further denting confidence in the space.
But the crypto market’s demise started long before Celsius and Binance began experiencing issues, with both firms blaming the problems faced by the broader crypto market.
Other than brief price jumps, bitcoin and other leading cryptocurrencies have been on a downward trajectory since the end of last year. Rising interest rates, inflation and the capitulation of tech stocks during this time have all fuelled its demise and have fed fears of a looming ‘crypto winter’.
Bitcoin price crash: Where does it go from here?
This is currently the trillion-dollar question, and has proved particularly divisive among crypto market commentators.
There is no doubt now that this is a bear market, the only uncertainty is whether this is the middle or near the end of it.
“It is important to remember that this period of persistant inflation should pass, and the crypto industry will become more efficient, as unsecure and incompetent firms are weeded out bit by bit,” said Mr Sotiriou.
Others have warned that after finally dropping below $30,000 after holding that level as a bottom for 18 months, bitcoin may now be “on the verge of a breakdown” that will see it ultimately realise similar losses to the previous two crashes following the 2013 and 2017 peaks.
“A looming hazard of a ‘crypto winter’, now hangs in the balance,” said Rich Blake, a financial consultant at the crypto trading platform Uphold.
“As far as support levels, the next few days surely will test digital assets if a faster pace of tightening and more aggressive rate hikes are announced. For the moment, extreme market conditions and Fed policy updates are exacerbating the consequences for crypto assets.”