Bitcoin, which posted its biggest monthly drop ever, troubled traders with sharp swings on Friday morning as cryptocurrencies are in search of direction.
The largest cryptocurrency rallied as much as 11.3% in Asia on Friday, briefly approaching the $21,000 level.
Bitcoin then quickly lost most of those gains as global equity markets plunged, trading at $19,410 at 7 a.m. London time and trading at similar levels at this hour.
June’s 41% drop was the steepest monthly decline in data available to Bloomberg going back to 2010, while also marking the worst quarterly decline since 2011, according to CNBC data, and about $1.2 trillion has been lost from the total value of the cryptocurrency market.
Amidst this chaos, cryptocurrency companies have announced staff layoffs and the industry is moving towards consolidating companies through acquisitions.
What were the five major developments that affected the price of the
1. Macroeconomic fears
During the quarter, the Federal Reserve implemented two aggressive interest rate hikes to combat runaway inflation. This raised fears of a recession in the US and other countries.
This also hit stocks, especially large technology companies. The tech-heavy Nasdaq fell 22.4% for the second quarter, its worst quarterly performance since 2008.
Bitcoin has been closely correlated with the price movement of US stock market indices. The sell-off in equities has weighed on bitcoin and the cryptocurrency market as investors flee risky assets.
2. The collapse of terraUSD
The first major incident last quarter was the collapse of the algorithmic stablecoin terraUSD and the token luna.
A stablecoin is a type of cryptocurrency that is usually linked to an actual asset. TerraUSD, or UST, was supposed to be pegged to the US dollar at a one-to-one exchange rate.
Some stablecoins are backed by real assets, such as scriptural money or government bonds. But the UST was governed by an algorithm, the system failed and TerraUSD lost its link to the dollar, causing the linked token luna to collapse, which was rendered useless.
3. Lender Celsius stops withdrawals
Cryptocurrency lender Celsius has stopped withdrawals for its customers in June.
The company offered users returns of more than 18% if they deposited cryptocurrency with Celsius. It then lent that money to market participants who were willing to pay a high interest rate to borrow it.
But the fall in prices put this model to the test. Celsius cited ‘extreme market conditions’ as the reason for the cessation of withdrawals.
On Thursday, Celsius said in a blog post that it was taking “significant steps to preserve and protect assets and explore the options available to us.”
Those options include “pursuing strategic transactions as well as restructuring our liabilities, among other ways.”
The problems with Celsius revealed a weakness in many of the lending models used in the cryptocurrency industry that offered users high returns.
4. Developments with Three Arrows Capital
Three Arrows Capital is one of the most prominent hedge funds focused on cryptocurrency investments, is facing asset divestment, a source with knowledge of the matter told CNBC, in another indication of the crisis the cryptocurrency industry is going through.
The Financial Times reported last month that US-based cryptocurrency lenders BlockFi and Genesis have liquidated some of 3AC’s positions. 3AC had borrowed from BlockFi, but was unable to respond to the margin call.
Subsequently, 3AC defaulted on a loan worth over $660 million from Voyager Digital. As a result, Three Arrows Capital is moving to divest assets, a person with knowledge of the matter told CNBC this week.
5. The trading freeze by Coinflex
The cryptocurrency exchange CoinFlex stopped customer withdrawals last month, citing “extreme market conditions”.
CoinFlex had another problem with a customer failing to repay a $47 million debt, creating a liquidity problem for the company. That customer was well-known investor Roger Ver.
The exchange said that normally, in the event of a negative account, a process of liquidation of positions follows. But CoinFlex and Ver had an agreement that did not allow this.
CoinFlex issued a new token called Recovery Value USD, or rvUSD, to raise the $47 million so that it could continue withdrawals and is offering a 20% interest rate for investors wishing to buy and hold the digital currency.