Latest update on the crypto market: Bitcoin dropped below $20k and Ethereum below $1k

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By Jonty Sacks*

With Bitcoin (BTC) dropping below $20k and Ethe below $1k during the past week, market talk has turned to “capitulation” – that’s when short sellers take profits and hastily exit the market.

There’s a good reason for that: look at the chart below and you will notice that BTC has bumped into a previous all-time high at around $19 200 (the horizontal blue line below).

Source: TradingView.

What’s driving crypto markets lower is the 75-basis point rise in US interest rates announced last week and a flight from risk assets. This was pre-empted by the collapse of the Terra eco-system in May 2022, and more recently the contagion effect on decentralised finance (DeFi) system, Celsius.

According to Coindesk, Celsius had liabilities of more than 1 million ETH, reporting analysis by crypto investor Brad Mills. The Celsius liquid reserves amounted to just 268,000 ETH, with a further 288,000 inaccessible until after the Merge (when the Ethereum blockchain shifts to a more efficient proof-of-stake consensus model) is completed.

This has prompted speculation that Celsius may be forced to declare bankruptcy after the platform announced it would be suspending withdrawals for the time being. This comes after reports that Celsius was juggling customer accounts and effectively gambling with their funds to maintain liquidity and out-sized yields.

It was also reported last week that crypto lender BlockFi recently liquidated a “large client” amid reports that troubled crypto hedge fund Three Arrows Capital failed to meet margin calls. The $10 billion crypto hedge fund is reportedly on the brink of insolvency after the plunge in crypto markets reduces the value of its holdings, says CNBC.

To get a sense of the overall direction of markets, have a look at the following chart of the S&P500 and Nasdaq 100 indices.

For information about Jaltech’s Cryptocurrency Basket, click here.

S&P500 and Nasdaq 100 indices

Source: Trading View (S&P500 – blue, Nasdaq – orange)

Ryan Shea, an economist at crypto investment firm, says what we are witnessing is the crypto equivalent of natural selection.

“Absent a central bank, the onus is on firms operating in the space to be responsible and those that aren’t (i.e., excessive leverage, poor risk management, poor security etc) will not succeed,” Shea said in a research note Friday.

“This process is without a doubt painful, but ultimately the lack of a centralised backstop is a good thing as it means moral hazard is avoided because there are no bailouts in crypto unlike in the fiat system.”

In other words, only the fittest will survive this, and those that are on shaky foundations will have to quickly adapt to the scolding they are getting from the market. The most transparent, best-run, collateralised projects will succeed.

Ultimately, I have always been of the view that investors should strongly consider investing in cryptocurrencies which have a large share of the market. There are a number of reasons to do so and the obvious one in this environment is that there is less of a likelihood that large-cap cryptocurrencies will go to zero (particularly overnight).

  • Jonty Sacks – Partner at Jaltech

Jaltech offers investors exposure to a basket of cryptocurrencies which is selected and managed by a team of cryptocurrency experts.

For information about Jaltech’s Cryptocurrency Basket, click here.

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