Just as Wall Street voiced confidence that cryptocurrency prices would weather May's meltdown, another storm hit Bitcoin owners, exchanges, miners and others, as crypto plummeted even further.
The sell-off began on June 13, ostensibly sparked by crypto exchange Celsius Networks. It halted withdrawals, fostered further weakness in technology stocks and raised new questions over when the digital assets would hit bottom. And, crypto stalwarts point to potential catalysts for Bitcoin prices down the road.
As of midday Friday, Bitcoin traded around $20,500, down more than 70% from its November 2021 all-time high of $68,990. Cryptocurrency hit a peak value of roughly $3 trillion, and now are worth less than $1 trillion.
The price of Bitcoin fell to near $20,000 on Wednesday after the Federal Reserve raised its benchmark interest rates three-quarters of a percentage point in its most aggressive hike since 1994.
"It has been a rough few days for crypto traders," Edward Moya, analyst at broker Oanda, said in a note to clients. "Sentiment for cryptos is terrible as the global crypto market cap has fallen below $1 trillion. If price action falls below the $20,000 level, it could get even uglier."
Celsius Halts Withdrawals
Meanwhile, Celsius announced that it was halting withdrawals. Celsius was offering double-digit interest rates on deposits. In addition, Celsius has made loans to crypto market makers, hedge funds and decentralized finance projects.
"Crypto lending markets have blown up for the second time in as many months," said economist Ed Yardeni in a research note.
Still, some investors believe crypto will rebound.
Take Bank of America's June 13 survey of 1,013 crypto and digital asset users. The survey came in early June, after May's meltdown in cryptocurrency prices. The collapse of crypto Luna and stable coin Terra spurred that sell-off.
Despite the UST/Luna collapse, 91% of those surveyed by BofA said they expected to buy crypto in the next six months, the same percentage as those who actually bought the currency in the past six months.
Cryptocurrency Prices: Bitcoin, Stable Coins Popular
Meanwhile, a JPMorgan report published on June 1 said that "the crypto ecosystem continues to show resiliency post-Terra's collapse."
Bitcoin and other cryptocurrencies, however, aren't out of the woods. But analysts say it's clear that while some may survive the "crypto winter" shakeout, many will not. There are now hundreds of cryptocurrencies and digital assets called stable coins.
The value of stable coins is pegged to traditional assets, such as the U.S. dollar or a commodity like gold, by using software algorithms.
Of those surveyed by BofA, 75% owned Bitcoin and 44% owned Ethereum.
In addition, 26% of respondents owned meme coins, like Dogecoin and Shibu Inu, and another 12% owned various stable coins. About 8% owned Terra, the algorithmic stablecoin that collapsed in May.
Crypto Casualties
Meanwhile, there are plenty of casualties among public crypto stocks, including exchanges, miners and payment companies.
Crypto exchange platform Coinbase Global has plummeted 80% in 2022. Coinbase on June 14 announced it's reducing its head count 18% by laying off 1,100 employees.
Mizuho Securities analyst Dan Dolev said in a report that the Coinbase "workforce reduction could hurt efforts to find new revenue streams as competition mounts, which may result in a potential pricing war."
Shares in Bitcoin miner Marathon Digital Holdings also have plunged 80%.
Bitcoin's shared public ledger, called a blockchain, is replicated on networked computers around the world. Bitcoin miners like Marathon compete to process and verify transactions with high-speed computers. They're rewarded with newly created Bitcoins.
Square-parent Block has tumbled 64% in 2022. Square aims to make it easier for users of its Cash App to make digital payments using Bitcoin on its network of merchants and retailers.
Catalysts For Cryptocurrency Prices
Still, there could be catalysts for cryptocurrency prices to improve.
JPMorgan points to the "Ethereum merge" — a major software upgrade — expected in the third or fourth quarter.
MoffettNathanson analyst Lisa Ellis says broader institutional ownership of crypto could help the Bitcoin ecosystem and others weather the current downturn in cryptocurrency prices. Bitcoin's price climbed after a crypto ETF debuted in February 2021.
But Bitcoin's price was nearly cut in half by mid-2021, falling to roughly $32,000 from nearly $60,000. At that point, institutional buying picked up, noted Ellis.
"Every crypto cycle is different," Ellis said in an email. "This one has the benefit of much broader institutional ownership and a more resilient ownership base — one that has been through a prior cycle."
She added: "But this cycle has the negatives of having a lot more leverage in the system and we are in a risk-off/interest rate tightening cycle — which we have not been in the prior cycles."
Bitcoin Miner Halving
One cyclical factor in the potential rebound in cryptocurrency prices involves rewards for miners.
Every four years, miners see the amount of Bitcoin they receive cut in half for solving algorithmic problems and recording blockchain transactions. The next halving is due in 2024.
According to a recent Jefferies report: "When the BTC blockchain was launched in 2009, the reward for solving a block was 50 Bitcoin. Roughly every four years, that reward is cut in half and will continue to be cut until it is effectively zero in the year 2140."
The Jefferies report added: "The last two halvings have resulted in about half a year of decreased mining rewards, but the acceleration in the price of BTC has more than offset the impact over time. After the May 2020 halving, it took six months to regain pre-halving revenue. Historically, investing in BTC in the months following a halving have been some of the best entry points."
More Crypto Regulation Coming?
Another reason crypto fans are still upbeat is that venture capital funding of startups has stayed strong, despite the collapse of stable coin Terra. Andreessen Horowitz raised a $4.5 billion fund dedicated to crypto and Web3, a next-generation internet, in late May.
One likely outcome of the current downturn will be more cryptocurrency regulation, analysts say. Many previously expected more regulation because of Bitcoin's use in avoiding taxes, law enforcement and capital controls.
But lawmakers now aim to protect novice investors because of the volatility in cryptocurrency prices, analysts say.
Proposed legislation would give the Commodity Futures Trading Commission regulatory authority. But the Securities and Exchange Commission also has new initiatives underway for oversight of cryptocurrency prices and exchanges.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.
