There are increasing signs that cryptocurrencies are entering a prolonged reversal, with markets falling below key levels, widespread job cuts, and intensifying regulatory scrutiny.
As of Monday, the total market value of cryptocurrencies fell below $1 trillion. That was the first time it had since January 2021, according to data from CoinMarketCap. In the year-to-date, top tokens Bitcoin and Ether are down around 55 percent and 70 percent respectively.
The latest sell-offs is partly attributable to major crypto lender Celsius Network’s decision to pause withdrawals, swaps, and transfers after weeks of speculation over its ability to deliver outsized returns including yields as high as 17 percent. The halts were made shortly after chief executive Alex Mashinsky challenged critics to find «even one person who has a problem withdrawing».
This follows closely on the heels of the recent collapse last month of stable coin TerraUSD and sister token Luna – which forms the foundation of another popular crypto yield platform.
Crypto Firms Also Hit
Many global financial institutions have been reluctant to advise investors to enter the crypto market due to high volatility and regulatory uncertainty in the asset class, preferring instead to bet on companies that are involved in related technologies.
But even such investments are not immune to cooling sentiment.
Bitcoin-focused Microstrategy’s share price fell by a quarter on Monday’s trading session while Nasdaq-listed crypto exchange Coinable fell as much as 21 percent before partly rebounding.
Job Cuts
The market downturn does not appear to be temporary, at least from the perspective of major crypto players, some of which are adjusting their expansion plans.
Singapore-headquartered Crypto.com’s CEO Kris Marszalek announced over the weekend that the firm would lay off around 260 staff – or 5 percent of its workforce – adding that it would optimize resources to position itself as «the strongest builders during the down cycle to become the biggest winners during the next bull run».
Separately, New Jersey-based crypto lending platform BlockFi said that market conditions have had a «negative impact» on the firm’s growth rate, leading to its decision to cut its headcount from over 850 employees to around 200. Earlier this month, crypto exchange Gemini Trust said it would ax 10 percent of staff while Coinbase Global said it was rescinding job offers and freezing hiring.
Regulatory Scrutiny
The wave of crypto headwinds is not limited to pure market events with regulators also increasingly tightening oversight.
This month, New York lawmakers passed a bill banning certain Bitcoin mining operations that run on carbon-based power sources.
Just one week ago, the U.S. Securities and Exchange Commission (SEC) launched a probe into Binance’s 2017 initial coin offering of its token, BNB, to ascertain if it acted as an unregistered security offering, according to a «Bloomberg» report citing unnamed sources.
Security or Not?
The SEC’s commonly cited rationale that certain tokens are securities has prompted pushback from Ripple which claims the U.S. regulator is slamming the crypto market in order to extend the reach of its authority.
«By bringing enforcement actions – or threats of potential enforcement – the SEC intends to bully, bulldoze, and bankrupt crypto innovation in the U.S., all in the name of impermissibly expanding its own jurisdictional limits,» said Stu Alderoty, general counsel at Ripple which is currently embroiled in a related legal battle with the SEC alleging that its token that went public in 2013 – XRP – was an unregistered security.
«Like a hammer wanting everything to be a nail, the SEC is keeping everything murky so it can argue every crypto is a security,» he added in a recent interview with the business magazine «Fortune».
Correlation Risk
Outside of the crypto world, the environment is not especially conducive for risk-taking in light of negative performance in public markets, weakened investor sentiment, and rising interest rates.
This turbulence could have a knock-on effect with cryptocurrencies still yet to fully prove their safe haven characteristics given they appear, instead, to be demonstrating correlation risks.
«Digital assets have undoubtedly benefited from the low-interest rate, high liquidity environment in recent years, with the reversal of the trend likely to remain a strong top-down driver of the asset class going forward,» said Sipho Arntzen, a next-generation research analyst at Julius Baer, in a note last month.
«While historically correlations between digital assets and equities have been low on average, they tend to spike around risk-off events, often resulting in digital assets falling more than equities, as has been demonstrated recently by markets. For now, headwinds are likely to persist and a quick reversal is unlikely.»
