September 25, 2022

Bitcoin Holding Near $20,000 as Investors Worry about ‘Domino Effect’

bitcoin

On Monday, the cryptocurrency market was on edge, as Bitcoin was trading at a value just slightly above $20,000. This had investors worried that problems with some prominent crypto companies could result in issues in the wider market.

Bitcoin shedding quickly

The largest cryptocurrency in the world, Bitcoin dropped to as low as $17,592.78 on Saturday. This brought the crypto under the $20,000 threshold for the first time after December 2020. On Monday, the first cryptocurrency in the world picked up in London trading hours and by 1232 GMT, it had climbed to a value of $20,510.

However, there has already been a 55% decline in the value of Bitcoin since the start of 2022. As a matter of fact, this month alone has seen Bitcoin shed 35% of its value in the latest meltdown of the cryptocurrency sector.

Crypto Companies Suffering

The fall in Bitcoin’s price comes as a number of companies in the crypto space are facing problems. According to players, more declines would have a domino effect, as other investors would also be driven to selling their holdings in order to cover losses and meet margin calls.

Crypto lender Celsius Network announced last week that it was freezing withdrawals of all accounts on its platform. Babel Finance, another crypto lender focused on Asia, also made a similar announcement. Last Friday, founders of Three Arrows Capital said that the crypto hedge fund was considering selling its assets, or opting for a bailout from another company.

Market analysts said that in terms of a single company suffering, the worst had already passed, but there could be more problems for the industry as a whole. Celsius Network also made an announcement on Monday that it was working with officials and regulators, but was going to hit pause on Q&A sessions with customers.

As a great deal of credit is already being withdrawn from the crypto space and losses from companies like Three Arrows and Celsius will also have an impact, it would reduce the amount of credit in the crypto industry quite significantly. This would not be very different from 2008 when liquidations and bankruptcies had had a domino effect.

Smaller Tokens Also Suffer

It wasn’t just Bitcoin that was feeling the pain in the crypto space. Smaller tokens that also move with the world’s largest crypto also paid the price. Ether, which is the number 2 token in the market, was last trading at $1,129. This was after it had gone below the $1,000 threshold, which is its own symbolic level, over the weekend.

The downturn in the crypto market has coincided with the turmoil in the stock market as well, as US equities recorded their biggest ever declines in a week in the last two years because of the increasing chances of recession and hikes in interest rates. The moves in Bitcoin typically follow the same trends seen in riskier assets like tech stocks and this is exactly what has been happening of late.

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