Bitcoin, Ether Bounce Off Lows After Record-Breaking Rout

Bitcoin plunged through several closely watched price levels to the lowest since late 2020 as evidence of deepening stress within the crypto industry.

The crypto market now stands at a fraction of its heights in late 2021, when Bitcoin traded near $69,000.  (REUTERS)

Bitcoin plunged through several closely watched price levels to the lowest since late 2020 as evidence of deepening stress within the crypto industry keeps piling up against a backdrop of monetary tightening. 

The largest digital token by market value tumbled as much as 15% to $17,599 on Saturday, marking a record-breaking 12th consecutive daily decline according to Bloomberg data. It's still only the biggest drop since Monday. The currency recovered some of those losses and was trading at $19,075 as of 8:30 a.m. in Singapore Sunday.

Ether fell as much as 19% to $881, the lowest since January 2021, before climbing 11% to $1,005 on Sunday morning in Singapore. The two bellwethers of the crypto market are both down more than 70% from all-time highs set in early November. 

“What we're seeing is more liquidations driving prices and sentiment lower, which triggers more liquidations and negative sentiment -- some flushing-out needed still, but this will at some stage exhaust itself,” said Noelle Acheson, head of market insights at Genesis, one of the largest and best-known lenders in the digital-assets space.

Total liquidations in the crypto market were $566.7 million in the past 24 hours, with Bitcoin and Ether at around $271 million and $192 million respectively, according to data from Coinglass.

The latest leg down pushed Bitcoin below $19,511, the high the coin hit during its last bull cycle in 2017, which it reached at the end of that year. Throughout its roughly 12-year trading history, Bitcoin has never dropped below previous cycle peaks.

Altcoins were no exception to soured investor appetite in the wake of Bitcoin's fall, with every token on Bloomberg's cryptocurrency monitor trading in the red. Cardano, Solana, Dogecoin and Polkadot recorded falls of between 12% and 14%, while privacy tokens such as Monero and Zcash lost as much as 16%. 

A toxic mix of bad news cycles and higher interest rates has been deleterious to riskier assets like crypto. The Federal Reserve raised its main interest rate on June 15 by three-quarters of a percentage point -- the biggest increase since 1994 -- and central bankers signaled they will keep hiking aggressively this year in the fight to tame inflation.

“Investors are continuing to position defensively following last year's liquidity-driven digital asset bull market,” Alkesh Shah, head of crypto and digital assets strategy at Bank of America Corp., said in a note on Friday. “Although painful, removing the sector's froth is likely healthy as investors shift focus to projects with clear road maps to cash flow and profitability versus purely revenue growth.”

Broader signs of stress emerged with last month's collapse of the Terra blockchain, and worsened this week following crypto lender Celsius Network Ltd.'s recent decision to halt withdrawals. 

Adding to the mood, crypto hedge fund Three Arrows Capital suffered large losses and said it was considering asset sales or a bailout, while another lender, Babel Finance, followed in Celsius's footsteps on Friday. Even long-term holders who have avoided selling until now are coming under pressure, according to researcher Glassnode. 

“After Celsius, the focus last few days has been Three Arrow Capital and Babel Finance.” said Teong Hng, chief executive of Hong Kong-based crypto investment firm Satori Research. “Su Zhu, the founder of 3AC seems to be missing in action, after purportedly suffering huge losses due to massive drop in crypto this round.”

Stablecoins — a type of crypto asset pegged to the value of a fiat currency like the US dollar -- have also struggled. 

The top four stablecoins saw exchange net outflows last week that were 4.5 times larger than the prior week, Bank of America's Shah said, having charted net outflows in eight of the 10 prior weeks. Stablecoins are often relied upon by crypto traders to move funds around the ecosystem without needing to exit into traditional currencies, so persistent outflows indicate that investors remain defensive, he added.

Even with the piercing of the key $20,000 level, historical data show that Bitcoin may find key support around that mark as previous selloffs demonstrate where the token usually finds points of resilience, according to Mike McGlone, an analyst for Bloomberg Intelligence. 

Bitcoin may “build a base around $20,000 as it did at about $5,000 in 2018-19 and $300 in 2014-15,” he said in a note on Wednesday. “Declining volatility and rising prices are earmarks of the maturing digital store-of-value.”

Still, the digital currency is fast approaching its December 2020 low of $17,589. It traded as low as $13,222 the prior month that year.

The crypto market now stands at a fraction of its heights in late 2021, when Bitcoin traded near $69,000 and traders poured cash into speculative investments of all stripes. The total market cap of cryptocurrencies was around $881 billion on Sunday, down from $3 trillion in November, according to pricing data from CoinGecko.