Inflation Pressure & Other Events Cause Market Crash, Leading to $2 Trillion Drop in Under Eight Months
Digital assets have seen one of their worst weeks all year, with the global market cap shrinking below $1 trillion to $977 billion earlier this week. This is a staggering drop of over $2 trillion after it touched over $3 trillion in November last year.
The most prominent reason for this crash appears to be a massive sell-off by investors following heightened inflation. With inflation, prices for everyday items have risen significantly, causing things like food, gas, and energy prices to rise, putting a lot of pressure on the digital asset market. Another issue is the pausing of withdrawal by digital asset lending service Celsius.
Now many of the top digital assets are worth less than half or even less than their all-time highs. The most popular coin, Bitcoin, is currently sitting at $20,613.23 USD, a third of its all-time high, which was around $68,000 in November 2021.
Ethereum has also dropped to its lowest point in over 14 months, trading around $1,097.00 at the time of writing this. When writing this, Solana has already dropped by more than 15%, sitting at $31.01.
Though altcoins have consistently underperformed compared to Bitcoin and Ethereum, with this intense market pressure and potential regulatory roadblocks, many believe that only a small number of altcoins are likely to survive such market movements.
Most experts are stating the digital asset crash is indicative of a falling risk appetite of investors during uncertain economic times. With the volatile market movement over the last year and the rising inflation, many investors are wary of risky assets and are in need of cash. Though prices are falling, they don’t completely reflect the failure of bitcoin’s fundamentals.
Celsius Pausing Withdrawals
Another issue is the recent Celsius news, which many have linked to the recent crash.
On Sunday, Celsius, one of the most prominent digital asset lending platforms, paused all withdrawals, swaps, and transfers between accounts. Though it has reportedly hired restructuring attorneys to advise on possible solutions for its growing finance issues, the potential effect it could have on the market as a whole is problematic.
Many have speculated on the potential stress at the influential hedge fund Three Arrows Capital after a tweet was made this week from its founder Zhu Su, who wrote that “we are in the process of communicating with relevant parties and fully committed to working this out.”
The following day, it was reported that Three Arrows is “in the process of figuring out how to repay lenders and other counterparties after it was liquidated by top tier lending firms in the space.”
Many market participants worry about the contagious risks Celsius and Three Arrows Capital may pose to the whole digital asset market, as the firms could become insolvent.
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Writer, content marketing at Netcoins.