Fail or recovery – crypto capitalization falls below $1.2 trillion

The total market capitalization of the crypto market falls below $1.2 trillion, but the data shows that traders are less likely to sell.

The recovering price of Tether in the markets and positive BTC and ETH futures premiums suggest a slight recovery is underway.

 The crypto market’s total capitalization has been downtrend over the past 45 days and is currently showing support at $1.17 trillion. Over the past seven days, Bitcoin (BTC) posted a modest 2% drop while Ethereum (ETH) faced a 5% correction.

The CPI report on June 10 showed an 8.6% year-on-year increase, and crypto and stock markets felt the impact immediately, but it is unknown if this figure will make the US Federal Reserve doubt future interest rate hikes.

 Mid-cap altcoins have fallen even more, and the sentiment is still bearish  

The general bearish sentiment, fueled by weak macro data and uncertainty about the ability to contain inflation, has significantly impacted the crypto markets.

The fear and greed index hit 11 out of 100 on June 9, and the data-driven sentiment indicator has been below 20 since May 8. (On 12.06.2022 it was equal to 14).

This persistent “extreme fear” reading indicates that investors are worried, but at the same time, it presumably represents a good crypto buying opportunity.

While the top two cryptocurrencies suffered modest losses, several mid-cap altcoins were down 14% or more.

Below are the winners and losers in growth among the top 80 coins over the past seven days:

• The Helium Community (HNT) has endorsed the HIP -51 proposal, covering the economic and technical constructs needed to support new users, devices, and various networks, including cellular, VPN, and Wi-Fi.
• Chainlink ( LINK ) is up 22% after the developers released the updated Chainlink 2.0 roadmap, which includes the placement of native tokens.
• WAVES lost 28% after a $1,000 per day stablecoin withdrawal limit was introduced in Vires Finance to avoid further pressure on the Neutrino protocol stablecoin (USDN).

Data shows traders are less likely to sell at current levels

OKX markup Tether is a good indication of the demand for retail crypto traders in China. It measures the difference between Chinese peer-to-peer (P2P) transactions and the US dollar.

Excessive buying demand tends to put pressure on the indicator above fair value at 100%, and during bear markets, Tether’s market supply is overwhelmed and triggers a 4% discount or higher.

On May 31, the price of Tether in Asian peer-to-peer markets fell by 4%, signalling intense retail selling pressure. However, the situation improved on June 10 after the indicator moved to a 1.5% discount. Although the hand remains negative, it shows the willingness of investors to buy off the bottom, as the total capitalization of cryptocurrencies fell below $1.2 trillion.

Traders should also analyze the cryptocurrency futures markets to rule out external factors. For example, perpetual contracts, also reverse swaps, have an embedded rate typically charged every eight hours. Exchanges use this fee to avoid currency risk imbalances.

A positive funding rate indicates that long positions (buyers) require more leverage. However, the opposite situation occurs when short posts (sellers) require additional power, causing the funding rate to become negative.

The perpetual contracts reflected mixed sentiment after Bitcoin and Ethereum maintained a slightly positive (bullish) funding rate, but altcoin rates were negative. For example, a negative weekly BNB rate of 0.20% equals 0.8% per month, which is generally not a concern for traders.

Any recovery depends on macroeconomic stabilization

According to derivatives and trading indicators, investors are less likely to cut their positions at current levels.

The positive funding rate of Bitcoin and Ethereum futures demonstrates a growing appetite of traders for leveraged long positions as the total capitalization of cryptocurrencies has fallen below $1.2 trillion.

If traditional markets and the macroeconomic scenario do not worsen, there is reason to believe that crypto investors expect positive price movement soon.

We remind you that every investment decision is associated with risk. Therefore, when making a decision, you should do your research.

 What’s next for cryptocurrencies? Investor concerns 

Liquidity issues at crypto lending company Celsius have left market participants wary of a broader crisis spread that could likely lead to other cryptocurrencies falling and even crashing.

We remind you that the credit institution Celsius suspended the withdrawal of funds the other day, which caused nervous speculation that it might simply go bankrupt. We wrote about how this company worked here. Celsius lent money to clients to other people and organizations. Despite its similarity to classical banks, the project did not require strict regulation to insure cash and loans. According to the latest data, they are preparing for the company’s restructuring.

Following the news, Bitcoin plunged below $21,000 on Tuesday, continuing its sharp fall from the day before. In addition, the total value of all digital currencies in the aggregate from CoinMarketCap fell below $1 trillion for the first time in a year and a half. 

Cryptocurrency investors fear that the likely collapse of Celsius could lead to even more losses for the market, which was already in a very precarious position after the failure of the $60 billion Terra. As it turns out, Celsius also invested in Terra.

The company is ignoring many requests for comment regarding the ongoing chaos. Monsoor Hussain, Senior Director of Financial Institutions at Fitch Ratings, said that liquidating Celsius assets “will further undermine the valuation of crypto assets, leading to a wider round of crypto contagion”.

Celsius has a prominent place in decentralized finance, which aims to replace traditional financial products (banks and their loans) with a modern system based on transparency and accessibility without third-party interference from various intermediaries.

Celsius owns numerous popular assets in the DeFi world, including staked ether, a version of the ether cryptocurrency that promises users rewards for their deposits.

According to Omid Malekan, a professor at Columbia Business School, “if the company goes into full liquidation, then it will have to close these positions”.

At the same time, the USDD stablecoin, which should always be worth $1, fell to 97 cents on Monday, as did the Terra UST stablecoin last month. The creator of the coin, Justin Sun, has accused unknown investors of shorting the token and has promised $2 billion in funding to strengthen its peg to the dollar. 

Also, crypto-lending companies Nexo and BlockFi have tried to ease concerns about their fortune after Celsius announced the decision to stop withdrawing funds.

Nexo said it has “solid liquidity and equity” and even offered to acquire a portion of Celsius’ loan portfolio, an offer it said the company turned down. BlockFi noted that all its services “continue to operate as normal” and are “not at risk.”

However, that doesn’t mean it hasn’t been affected by the economic downturn – BlockFi laid off about 20% of its workforce this month in response to a “drastic change in macroeconomic conditions.”

On June 15, 2022, an important event took place – the next meeting of the Fed on the topic of inflation and the key rate. This affected not only the stock markets but the entire economy and especially cryptocurrencies.   

Celsius ‘liquidity crunch’ raises concerns about possible side effects in other financial markets

CDPQ, the manager of Canada’s second-largest pension fund, co-founded an investment in Celsius shares earlier this year.

But many analysts argue that any side effects from the failure of Celsius are likely to be limited to the crypto industry.” Fitch’s Hussain said the decline in the price of cryptocurrencies reflects “the contraction of the entire crypto market“, adding that “infection of the wider centralized financial system will be limited”.

However, it is still essential to understand that the fall of Bitcoin and the crypto sphere can lead to a decline in stock markets and the economy’s development since cryptocurrency is an indicator of the general risk appetite of all investors.

Why is crypto falling?  

A week ago, Bitcoin crashed to $22.780, the lowest point since the end of 2020. In the early morning today, it fell below $21,000. There are several reasons for this behaviour, so let’s understand everything.

To do this, let’s go back a few days. Recently, the capitalization of the entire crypto market has fallen below $1 trillion (the last time such figures were more than a year ago).

Factors that brought down the cryptocurrency market

1. Let’s start with global economic causes. Massive inflation and a recession form such an economic phenomenon as stagflation. Usually, a recession sets in during a crisis, and inflation sets in when the peak of the problem has passed. But now hyperinflation and recession go hand in hand.
2. This, in turn, affects Central Banks’ desire to raise key interest rates to contain inflation somehow. When interest rates are high in a country, loans become unprofitable, but at the same time, interest on bank deposits rises – they grow; therefore, more and more investors trust their money to banks instead of buying different assets. So is because high-interest rates are painful and even harmful to the economy. Businesses stop making money.
3. Like a snowball, these factors affect the state and mood in the stock markets. As a result, investors are fleeing the ship, withdrawing their money from securities, and stocks and indices are falling. And here comes the problem. Despite the initial idea that cryptocurrencies and bitcoin are inflation-protective assets, in recent times, they have become increasingly directly linked to the stock market. And when indices fall, bitcoin collapses, followed by all other cryptocurrencies.
4. When stocks and cryptocurrencies fall, so does investor confidence in them. Everyone expects their assets to grow indefinitely, and when this does not happen, they panicky claim that it is all a scam and there is nothing better than crispy bills. Alas, financial illiteracy only adds fuel to the fire. After all, if investors understood how the economy works and what laws it lives by, they would be happy to buy at the bottom of the market and calmly wait for the growth of their assets. The real crisis would have ended faster than people would have had time to feel all its bitter consequences for themselves. Unfortunately, if the authorities cannot quickly cope with the economic crisis, then the recovery will be long for all areas. We remind you that according to statistics, Bitcoin fell by 80% from its maximum level during the periods of previous bear markets. To date, its fall is about 65% from its November peaks. In connection with these arguments, some analysts are very harmful and expect an even greater price collapse soon.
5. The hunt for crypto from regulators has undermined investor confidence in long-term crypto investments. People began to doubt and withdraw the cache. The level of fear from all these factors became hardening.
6. The collapse of LUNA and terraUSD is an example of a good project that, unexpectedly for everyone, turned into an endless cycle of scams in nature, after which, in May, the entire crypto market began its rapid decline.
7. Well, the icing on this cake was some sad and even outrageous news regarding the Celsius project sometime before the subsequent collapse of Bitcoin, Ethereum and other cryptocurrencies.

Lending crypto organization Celsius Network (CEL) has paused withdrawals and other operations with its users’ money. This event caused even greater anxiety and distrust regarding the reliability of the crypto market among investors.

Summary

• CEL provided an opportunity to earn an income of 18% for its users. You give your money – the platform lends it to other people and companies – you get your percentage of the loan.
• Due to the panic in the market, people began to withdraw their money from crypto-assets massively, and at some point, Celsius did not have enough funds to continue working as usual. Therefore, unable to cope with the crypto crisis, they blocked the withdrawal of funds and other transactions with their clients’ money.
• CEL – the token of the Celsius company – collapsed by more than 50% in a day.
• Of course, the markets were already in a terrible state because of the first six points listed above, but the last of them (p. 7) may have been the ‘last straw’.
• “In the medium term, everyone is gearing up for further declines,” said Mikkel Morh, chief executive of a crypto hedge fund. “Bear markets have the opportunity to identify overleveraged projects, so there could likely be more problems ahead.”
• Although the markets are a living organism, and it is simply impossible to predict something for sure, all these factors, undoubtedly, having taken together, did their job and undermined the entire crypto-sphere.
• So you need to understand that not only does crypto feels terrible – the whole world and all industries are undergoing a severe crisis. And it is too early to predict when it will end.

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