By Mousume Roy, Contributing Writer, HCL Technologies Ltd.
On Monday, Bitcoin was trading either side of $20,000, while another widely followed token Ethereum-backed ether was at $1,075.. The two main digital coins of the crypto market are both down over 70% from all-time highs set in early November in 2021.
Problems at major crypto players have caused this significant downward spiral in the crypto market and investors fear this could lead to a blowout if not contained.
This year, the value of Bitcoin has dropped 57% as it fell below $20,000 for the first time since December 2020. The level is of symbolic significance, as it was roughly the peak of the 2017 cycle.
Adam Farthing, Chief Risk Officer for Japan at crypto liquidity provider B2C2 commented: "If the market goes higher, everyone breathes a sigh of relief, things will get refinanced, people will raise equity, and all of the risk will dissipate. But if we move much lower from here, I think it could be a total shitstorm."
"There is a lot of credit being withdrawn from the system and if lenders have to absorb losses from Celsius and Three Arrows, they will reduce the size of their future loan books which means that the entire amount of credit available in the crypto ecosystem is much reduced,” he added.
"It feels very like 2008 to me in terms of how there could be a domino effect of bankruptcies and liquidations," Farthing was quoted as saying by Reuters.
Why cryptocurrency market has crashed
Last month’s collapse of the Terra blockchain led to signs of stress which worsened following crypto lender Celsius Network Ltd.’s recent decision to halt withdrawals and transfers between accounts this week.
Adding to the challenges, crypto hedge fund Three Arrows Capital suffered huge losses and said it was considering asset sales or a bailout, while another lender, Babel Finance, followed in Celsius’s footsteps this week.
The market value of cryptocurrency assets has fallen from $3 trillion to less than $1 trillion, according to coinmarketcap.com, which tracks crypto prices. On Sunday morning, the company's data showed crypto's global market value stood at about $840 billion.