Explained: Why is the crypto market crashing? | Explained News – The Indian Express

The sell-off in the crypto market continued Tuesday with Bitcoin and Ether falling to new 18-month lows. Bitcoin is the world’s largest cryptocurrency, while Ether is the number two token. But not just the top two, all major cryptocurrencies have been trading in the red lately, with the fall testing even long-term investors. What has triggered this latest crash, and is there a respite in sight for investors?
What has triggered the latest sell-off?
The fall began last week Friday in sync with the sell-off in the US stock markets triggered by higher-than-expected rise in inflation and the fears of more aggressive interest rate hikes by the US Federal Reserve. While crypto markets should ideally perform independently of the traditional markets, they have, in the past too, been sensitive to movements in the mainstream financial world.
Monday brought more bad news as top cryptocurrency lending firm, Celsius Network, froze withdrawals. In a blog post, New Jersey-based Celsius announced that it had frozen withdrawals and transfers between accounts “to stabilise liquidity and operations while we take steps to preserve and protect assets”. It blamed “extreme market conditions” for the move and said that this action was aimed at putting “Celsius in a better position to honor, over time, its withdrawal obligations”. As of now, it has given out no timeline for resumption of withdrawals.
Earlier in May, the crypto market had taken a major hit after the stunning crash of the
TerraUST, an ‘algorithmic’ stablecoin with its value backed by a sister token known as Luna.
The deep-red crash, which had wiped out $40 billion of investor funds, had shaken the system because stablecoins are not prone to wild fluctuations like other cryptocurrencies.
What is Celsius, why does its ban on withdrawals matter?
Celsius is a crypto lender, which essentially means it is a bank of the crypto world.
Crypto lenders allow customers to deposit their coins with them for an interest, and then lend out cryptocurrencies to earn a return.
With assets around $11.8 billion, Celsius is a big player in the market of crypto lending. Savings in crypto parked with these lenders are known to offer returns to the tune of 17% to 20%.
These financial services are easier to access than the traditional banks, but on the flip side have no regulatory oversight.
According to a Financial Times report, the value of assets parked with Celsius on May 17 was less than $12 billion against over $24 billion in December 2021.
How bad is the crisis?
This is the second major meltdown of the crypto market within a month. Given the overall negative risk sentiment, a reversal of fortune seems unlikely soon.
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In this latest crash, the crypto market’s value slumped under $1 trillion for the first time since January 2021.
After reaching the record high of $69,000 in November last year, Bitcoin has fallen nearly 70%. It was trading in the zone of $22,000 Tuesday. The number two token, Ether, is down 75% from its November-high of $4,869.
The latest crash is likely to hasten the process of government oversight. In the US, two Senators Tuesday proposed legislation to create a regulatory framework for the cryptocurrency industry, reported the Associated Press.
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title="Explained:Saurabh KapoorHe works for The Indian Express…. read more

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