The cryptocurrency market has experienced the biggest drop in a year and a half, but bitcoin has already begun to win back. Various reasons for fluctuations are named – from a deliberate attack on the crypto industry to the standard bubble blowing that often happens in investment markets. What will happen next with popular cryptocurrencies – in the material NEWS.ru.
Crash on hype
Bitcoin fell below $28,000 on May 12, its lowest level since the fall of 2020. On May 13, bitcoin partially recouped the fall and rose by 6.19%, to $30,547. Despite the fact that its price peaked at the beginning of November 2021, when the coin was traded for $67,789 on Binance, after which it began to fall, the popularity of cryptocurrencies in general among investors so far only grew. Fluctuations in the bitcoin exchange rate were already perceived as everyday. Interest in investing in crypto was fueled by numerous messages from the world of digital assets, the number of which is now growing like mushrooms after rain.
With enthusiasm, investors and observers greeted another surge in the value of bitcoin on May 4th. In one day, bitcoin grew by more than two thousand dollars at once, reaching $39,825. Following bitcoin, the cost of the largest altcoins increased in 24 hours. The Ethereum exchange rate rose by 4% to $2.9 thousand, Binance Coin rose by 3% to $400. The total market capitalization increased by 4% over the day, to $1.89 trillion. Karl-Josef Hildenbrand/dpa/Global Look Press
This was followed by a sharp collapse of bitcoin to the values of a year and a half ago – $ 29,165, the popular cryptocurrency lost more than $ 10,000 of its value in a week. And the market as a whole lost 40% of capitalization. Following bitcoin, other cryptocoins began to fall in price.
The initial explanation of what was happening was an indication of the actions of the Fed – it was on May 4 that the American regulator raised the key rate by 50 bp. p. for the first time since 2000 to the level of 0.75-1% per annum. The regulator also announced plans to sell $30 billion worth of treasury bonds and $17.5 billion of mortgage bonds per month from June 1. In three months, sales will be increased to $60 billion for treasuries and $35 billion for mortgages. The Fed’s actions are aimed at strengthening the dollar.
Thus, the multidirectional dynamics of the value of the dollar and cryptocurrencies once again made itself felt. Moreover, roughly speaking, for one step in the growth of the dollar, we still have several steps of drawdown in the cryptoassets market. But is it only a matter of dollar strengthening?
Crypto was ordered
The situation with the complete collapse of the LUNA cryptocurrency from the Terra ecosystem, the seventh largest cryptocurrency as of March 2022, added spice to the discussions of the crypto market drawdown. LUNA is linked to TerraUSD, or UST. The network had problems after May 4, but analysts have warned about them before , pointing out that the dollar peg for such stablecoins brings not so much stability as risks.
It looks like the giants of the stock market Blackrock and Citadel were able to successfully exploit Terra’s weak spot. The version about their attacking actions appeared in the media and chats of cryptocurrency traders:
Blackrock and Citadel borrowed 100k BTC from Gemini (as stated in their credit book). They exchanged 25 thousand BTC for UST; all this was done quietly in anticipation of the attack. When the time came, they called Do Kwon from the Terra Foundation and said they wanted to sell a lot of BTC for UST. Since it was a big deal, they told him they didn’t want to move the market and asked him if he would like to buy their big block of BTC at a discount with UST. Do Kwan took the bait. He gave them a huge chunk of UST, thereby significantly reducing the liquidity of UST. At this point, Blackrock/Citadel dumped all BTC and UST, causing massive slippage and triggering a cascade of forced sells of both assets.
However, the interest in the collapse of the crypto market for a player like Blackrock can be explained by another motive. Cryptocurrencies draw on the capital that is so necessary for the stock market, one of the largest players in which is Blackrock. The drawdown of the stock market after the Fed rate hike was very significant: the S&P500 lost about 8%, the Nasdaq about 6%. However, at the moment both indices are growing.
The battles between the two systems will continue
The Terra blockchain stopped at block #7603700. Validators fear manipulation of protocol governance through token voting amid a significant additional LUNA issuance and a reduction in the cost of a potential attack. Attempts by the CEO of Terraform Labs, Do Kwon, have not yet yielded results, and so far it has not been possible to save the project or part of it. Over the past two days, the project has fallen by 99%, in turn, UST fell to 0.35 USD. Social network
The situation is complex and not fully understood, says Maxim Zelenevsky, Vice President of the Russian Association of Cryptoeconomics, Artificial Intelligence and Blockchain (RACIB).
The rescue attempt was in the use of bitcoin reserves, but it had only a short-term effect. There are different opinions as to why this collapse occurred. It may be an accident, or it may be a planned event aimed at destabilizing the market and undermining faith in the crypto industry, or maybe just a greed ,” Zelenevsky told NEWS.ru.
The version that the crypto industry was “ordered” “may be quite real,” Zelenevsky notes. So, on Tuesday, during a meeting of the Senate Banking Committee, US Treasury Secretary Janet Yellen emphasized the riskiness of stablecoins, and economist Francis Coppola suggested that the failure of UST is associated with a planned attack.
As a result, what happened led to a panic in the market, and the result was a significant drop in Bitcoin and altcoins, margin calls and panic behavior of players in the markets ,” Zelenevsky added.
Most likely, the confrontation between the two financial systems will not end there, there are many shocks ahead of the crypto market. Increased volatility (volatility) in relation to cryptocurrencies will have to be taken seriously.
At the moment, the rate of bitcoin, the flagship of the crypto industry, has grown after the collapse by 6% and rose above $30,000, but it is obvious that the fluctuations will continue. In addition, a systemic crisis is predicted for bitcoin due to an inconvenient protocol and other problems , which in itself does not mean the destruction of the crypto industry. On the contrary, many analysts believe that some stagnation will benefit the market, where many weak players have entered on the wave of popularity. It is they who will panic in the first place, but when they leave, the market will get stronger, its real growth will begin.