Those troubles include the trading platform Coinbase laying off 18 percent of its staff, the crypto bank Celsius saying it was pausing withdrawals, challenges to a hedge fund known as Three Arrows Capital (3AC), a broader stock market decline, and a decision by the Fed this week to raise interest rates in an attempt to slow skyrocketing inflation.
These all follow the collapse last month of Terra’s “stablecoin” and a related coin, luna, which precipitated a plunge.
Bitcoin’s drop is significant not only as a bellwether but also because it tends to trigger other sell-offs throughout the market — investors lose confidence and want to stem losses as the coins they’re holding lose value. The price of ethereum, another popular cryptocurrency, on Saturday dipped below $1,000 for the first time since January 2021, tracking a similar decline as bitcoin. Ethereum has lost more than 10 percent of its value in the last day and 40 percent in the past week.
Bitcoin’s price was as low as $6,000 in late March 2020, early in the pandemic, before a rally began. More people discovered the sector, and interest in digital investing grew with people stuck at home and seeking outlets to spend time and money. Stimulus checks also probably helped drive prices up for the same reasons.
By this past November, bitcoin had topped $61,000. But it has been falling steadily since, with experts saying that drop will probably continue in the near term.
“With the rate hike, we will actually see decreasing yield in the crypto space across all assets,” Haohan Xu, the chief executive of crypto firm Apifiny, wrote in a note, echoing the skepticism of many players and analysts.
That hike — the Fed raised interest rates three-quarters of a percentage point on Wednesday, the highest single jump in 28 years — has left a strong impact on crypto, given how many of the sector’s investors rely on loans. “Borrowing has been very important for anyone participating in the crypto market,” Xu wrote.
The crypto world is also heavily interdependent, with investment companies often holding positions in one another, amplifying the effect of a slowdown. 3AC, which many crypto start-ups rely on for investment, took a hit because it had invested hundreds of millions of dollars in luna.
This is not the first price roller coaster for bitcoin. In 2018, a sell-off known as the “crypto winter” dropped the price from $14,000 at the start of the year to barely $3,000 by year’s end. It clawed back to $9,000 by February 2020 before taking off from there during the pandemic.
Expert predictions of where the bottom will be for bitcoin this time around have been all over the map, in light of economic uncertainty and the lack of long historical patterns.
But many more people are invested in cryptocurrency now than four years ago, when it was largely a niche investment. A Pew study last year found that as many as 16 percent of Americans at some point held a cryptocurrency.