Celsius, stablecoins, Coinbase releases and other signs that crypto is in trouble.

If you’ve detected a few digital tears amidst the sea of ​​monkeys and punk avatars on Twitter, it’s because — not for the first time this year — cryptocurrencies are experiencing a major downturn. Bitcoin briefly fell below $20,000 on Wednesday morning For the first time since December 2020, and other popular currencies like Ethereum have also plunged to their lowest levels in years. Binance, the world’s largest crypto exchange, had to stop Bitcoin withdrawals on its platform for a few hours on Tuesday. As reported by Yahoo Finance on Monday, $1 billion worth of currency was liquidated from the market within 24 hours; overall, the crypto has lost two-thirds of its market share since its peak in November.

Why is this happening now? Well, the crypto-verse is partly reacting to the same factors that have plagued it all year, along with the stock market: rising interest rates, loss of investor confidence, inflation. But right now, some individual crypto companies, exchanges, and currencies appear to be unraveling, and the interconnected nature of the crypto market means that a problem in one part of the ecosystem will ripple through the entire space. Does a bubble, inflated first by faith and then by VC dollars, finally burst? Or has crypto grown to such a robust size that all this turbulence will pass? Let’s take a look at the key factors behind this month’s crypto chaos, and why the sector can overcome it.

Celsius network

Weekly Crypto Palpitations kicked off on Sunday with Celsius Network, the most popular lender in the crypto space, announced “Pause all withdrawals, trade[s], and transfers between accounts”, referring to “extreme market conditions”. Celsius is a kind of experimental bank that attracted almost 2 million users because of the huge benefits it offered. Basically: you store your Bitcoin, Ethereum, or CEL—the home currency—with Celsius, it lends out those coins, and it pays you handsomely, with 18.6 percent returns on stablecoins like Tether.

While Celsius’s operations attracted anticipation New Jersey and federal to regulators, his business wasn’t seriously hurt until this year’s crypto crash, which fueled it a 50 percent drop in the value of its total assets During 2022, thanks to mass user withdrawals. By this month, Celsius was unable to pay its interest to users, and stopped all withdrawals. On Sunday, the value of CEL dropped from 48 cents to 16 cents; has coins wild zigzags in price ever since.

Entering Monday, Celsius Network’s freezing of many popular currencies meant that users could not access their investments, cutting off a large supply of tokens from the market. One crypto firm told Yahoo Finance that Celsius was “risking insolvency“. If this happens, according to the terms of use of the network, the virtual coins stored or borrowed on the platform “may not be recoverable“. This would wipe out billions of dollars worth of cryptos. To avoid this, nexusseparate crypto exchange, formally offered to acquire the assets of Celsius.

Celsius is not the first crypto exchange that offered incredibly high performance customers, only to be tickled when he cannot fulfill those obligations. There is a reason traditional banks do not offer a high percentage of return.

Stablecoins (again)

The Celsius debacle has something to do with stablecoins, an important factor last month‘s crypto bellyflop. The network has many financial ties to Tether, the core asset that helps fuel the crypto-economy. Tether is a “stablecoin,” meaning that each of its coins is pegged to the US dollar in a mechanism intended to provide stability to a volatile market. It is also the most widely used stable currency. (Here’s a good explanation by Ben McKenzie and Jacob Silverman about the centrality of Tether to the crypto space, the opacity of some of its holdings, and why, if it were to collapse, it could take over a large chunk of the crypto market.)

Stablecoins, it turns out, are a little bit wrong. Last month’s crypto crash was set in motion when another stablecoin, known as Terra, fell from its peak to the US dollar, spooking the rest of the market. Tether, which unlike Terra is supposed to be backed by real assets, hasn’t fallen as dramatically, but it does change. It immersed during the May crypto crash, staying below $1 for weeks. The price recovered by this weekend, before Celsius’ struggles cleared up, dropping back down to 99 cents. One point of stablecoins is that people use them to trade other currencies, which is more efficient than moving digital money in and out of fiat. So you really want the value of Tether to be stable, otherwise the value of the currencies backed by Tether coins could also drop a lot and crypto players in general could lose confidence in the system.

The point is, Tether (which is supposed to be stable) was heavily tied to Celsius (apparently not). Last year, the founder of Celsius told Bloomberg He took out loans from Tether Limited, the entity behind the coin, with 1 billion Tether coins. to support his platform. In 2020, Celsius did a crowdfunding and half of the money raised was Tether. But on Wednesday, Tether announced that it had liquidated its stake in Celsius without affecting its value, stressing that “reserves remain strong“. OK!

Meanwhile, another stablecoin, USDD, was launched last montheven in the middle of the May accident He lost his dollar key on Mondayand has not yet recovered its price.

It’s worth noting that the other stablecoins that collapsed this year differ from Tether in significant ways: they’re not as widely used as Tether, and they’re also “algorithmic,” meaning they use automated trading to ensure their supply is maintained. stable with the value of the dollar. Maybe they shouldn’t be called “stablecoins” then?

layoffs

Digital assets are suffering now, but so are real people. Coinbase, the largest crypto exchange in the US, saw it a 10 percent drop in stock value and he announced on Tuesday that it was laying off 18 percent of its workforce—about 1,100 workers. Trade exchange Crypto.com and lending platform BlockFi layoffs are also planned. All this, a few weeks after the crypto platform founded by Gemini Winklevoss twins was hacked 10 percent of its employeesand Latin American exchange Bitso laid off 80 workers. Observers attribute these job losses to a general slowdown in crypto trading this year, with many crypto companies, like Coinbase, currently trading in a suffering market as well. And that company was already hit hard by last month’s crypto crash, when it reported a quarterly loss of $430 million, announced it had lost a fifth of its users and warned it was facing possible bankruptcy.

Crypto startups have been growing rapidly in number and value in recent years, bringing many tech workers and executives closer to the space. We can probably tell that boom is over.

But you must Buy Dip?

Despite the skepticism, some crypto executives, experts and observers predict a long-term improvement for the market, and yes, they are now encouraging users to buy Bitcoin and other currencies.

An investigator told CNN crypto bear markets in the past have looked sharp, yet currencies have often bounced back: For example, in 2017-18, Bitcoin fell to $3,217, a well-recovered low. Financial research firm FSInsight also noted in a report Celsius’ struggles may hold lessons for future investors, wants to be wary of overperforming exchanges. Another investor told CoinDesk that the market will indeed have problems behind it major currencies reach zero, which hasn’t happened yet. Where they fell is closer to Earth. We’ll see if they ever arrive moon.

Future Tense is a collaboration with Slate,
New Americaand
Arizona State University
which examines emerging technologies, public policy and society.