The cryptocurrency market is in a state of flux as it hit a fresh low in June 2022. The worldwide cryptocurrency market capitalization has dropped below $1 trillion, to $977 billion. After reaching a high of $3 trillion in November of last year, the global cryptocurrency market valuation has dropped by more than $2 trillion. Almost all of the world's most valuable coins are now worth half or even less than their all-time highs.
The crypto price drop, according to experts, indicates that investors' risk appetite is waning. They're plainly leery about high-risk investments. With all of its uncertainty and volatility, crypto is regarded as one of the most risky financial vehicles.
So far this year, dismal economic circumstances have battered cryptocurrencies and the stock market, with a probable recession coming, sky-high inflation, and a Federal Reserve prepared to further chill the economy by hiking interest rates. Let us examine the possible reasons behind this crypto bloodbath.
Layoffs in crypto exchanges
Crypto exchanges like Coinbase and Crypto.com, as well as crypto lending site BlockFI, have all announced layoffs. Gemini Trust Co. said in a blog post on June 2 that it will be laying off about 10% of its employees, citing "turbulent market conditions that are likely to linger for some time. As part of its cost-cutting strategy, Coinbase also has announced the layoff of 1100 staff. This news comes only a few months after the crypto exchange revealed plans to expand its operations in India by hiring 1000 people.
Meanwhile, Crypto.com has chosen to lay off 260 employees, a 5 percent reduction in its staff. BlockFi, a lending platform, has decided to reduce its employment by 20%, or about 170 individuals. Following which 2TM and Buenbit also looked to cut its employees by 12% and 45% respectively.
Halt on customer withdrawals by Celsius Network
Celsius, a contentious cryptocurrency lending platform, said on 13th June that it was suspending all withdrawals, adding to the market's already-stressed state. As of May, Celsius was one of the major participants in the embryonic crypto lending market, with about $12 billion in assets under management and more than $8 billion in loans to clients. Concerns about Celsius' solvency have been raised as a result of the move. Since October, when it managed $26 billion in customer funds, the firm's assets have more than halved in value. In the same timeframe, the cel token has lost 97 percent of its value.
Cryptocurrencies have had a tumultuous journey in 2022. The cryptocurrency market dipped in January before rebounding in February. The global crypto industry has been scrutinised by governments throughout the world as they attempt to regulate cryptos. The crypto bill is yet to be introduced in India. In India, the bill aims to outlaw all private cryptocurrencies. The nation has also imposed a 30% tax on cryptocurrency investors and a 1% TDS on all crypto intra-traders. India currently does not regulate cryptos and will not legalise them either. Regulatory difficulties have made it tough for investors to decide whether or not to invest in cryptocurrency.
Interest rate hike by Fed Reserve
The Federal Reserve raised rates by 0.75 percent on June 15th , the greatest increase in 28 years. The US Federal Reserve has decided to continue to raise interest rates in order to reduce inflation. According to a Wall Street Journal, the Fed will pursue an aggressive plan to raise debt prices, restrict spending, and contain record-high inflation. The rapid rise in interest rates is widely seen as a leading indication of impending recession. According to the report, both the stock market and the crypto market experienced a significant drop; investors lost faith and began selling their digital assets, resulting in a crypto market massacre.
Effect of falling stock market
The crypto market is also tied to the stock market. If the stock market is experiencing a decline, the crypto-sphere is experiencing the same thing. Cryptocurrency prices are influenced by many of the same variables that drive stock values. Cryptocurrency prices increased and fell in the same way that stock prices did in late 2021 and early 2022.
According to a New York Times analysis, Bitcoin's price swings are quite similar to those of Nasdaq, a stock index that is heavily weighted towards tech businesses. While crypto markets should ideally behave independently of regular markets, they have proven subject to financial market changes.
It's the most recent high-profile failure of a bitcoin industry pillar. These financial meltdowns have wiped out tens of billions of dollars in investor assets, prompting urgent calls for regulation of the unregulated industry.