The current situation in the crypto market looks really grim. As Bitcoin reached its lowest level since December 2020, tumbling below 23k, and crypto lender Celsius halted withdrawals for its customers, many investors wondered if the market had already reached its bottom, hoping for a quick rebound and a bull run to new all-time highs. However, the unfavorable macro conditions and the FUD around Celsius and TRON indicate the opposite – crypto is in a prolonged downtrend.
The primary trigger of the ongoing crypto crash is the Fed’s new rate hike by 50 basis points, expected to be announced on Wednesday. Some analysts, however, warn that Chair Powell can make a hawkish surprise and opt for a 75bp, curbing monetary support at a more aggressive pace. The rampant inflation is another negative catalyst for the broad market, as Friday’s report showed the Consumer Price Index rising 8.6% year over year, which is well above the expected 8.3%.
On Monday, the stock market opened in bear territory, a 20% decline from the January peak. The tech-heavy Nasdaq fell the most sharply out of the three main US indices, losing 4.2%. The Big Tech became practically synonymous with crypto on the wave of pandemic adoption, as many companies, including Tesla, MicroStrategy, and Galaxy Digital, purchased billions worth of Bitcoin and Ethereum. The increased correlation with the stock market made cryptocurrencies behave more like a traditional high-risk asset. Now, when Nasdaq has its bad days, so does crypto.
The crypto lender Celsius added fuel to the market panic, announcing that it was pausing all withdrawals, swaps, and transfers between accounts “due to extreme market conditions.” The company attempted to reassure its customers, promising to honor its withdrawal obligations “over time.” However, such vague reassurance didn’t prevent Celsius token CEL from crashing by 51% immediately after the announcement.
The fall of Celsius can lead to a broader contagion of the crypto market. The lending platform with 1.7 million customers and $11.8b worth of assets loaned deposited crypto to financial institutions, offering users an 18% annual yield. The companies with high exposure to Celsius include crypto brokers Voyager and Nuri, as well as crypto exchange Gemini and USDT stablecoin issuer Tether.
Another factor that pushed the crypto market down is the depegging of a DeFi derivative of Ethereum dubbed Lido Staked Ethereum (stETH). The asset is supposed to trade at a 1:1 peg to ETH, but the $1.5b dump by Alameda Capital, stETH biggest holder, resulted in its fall by 10% on Sunday. Although there’s no direct link between the two assets, stETH depeg may have contributed to the panic selling of Ethereum that already has fallen below its 2018 peak.
Staked ETH represents Ether that is locked on the Ethereum beacon chain and is used as the collateral to buy more ETH on DeFi platforms. At the moment of writing, stETH is trading at $1,150, whereas Ethereum is trading at $1,216.
Economist Peter Schiff, known for his critical stance on crypto, predicted that Bitcoin and Ethereum would plunge even deeper. “Bitcoin looks poised to crash to $20K and Ethereum to $1K… Don’t buy this dip. You’ll lose a lot more money,” he tweeted on Saturday. Schiff explained that soaring prices will force many retail investors to sell their crypto holdings, which is different from the pandemic crisis when households cut consumption and received stimulus checks.
At the same time, the majority of crypto hedge funds are bullish on Bitcoin. According to a survey conducted by PwC in April, hedge fund managers anticipate Bitcoin’s strong rebound in 2022.
“All respondents predicted that BTC would end the year above the prevailing price upon survey closure, $40,000, with the median prediction of BTC price being $75,000. The majority of predictions were within the $75,000 to $100,000 range (42%), with another 35% predicting the BTC price to be between $50,000 and $75,000 by the end of 2022,” the report reads.
At the time of writing, Bitcoin is trading at $22,400, and Ethereum is changing hands at $1,200.
So, is it a good time to buy the dip? The best tactic would be to keep a cool head and avoid catching the falling knives, not rushing into crypto the same moment you receive a price alert. The situation around Celsius is still unclear, and bearish macro factors are likely to persist. Additionally, there’s still a certain risk that Fed will tighten too much, so waiting until the new rate hike is announced may be a reasonable choice.