Explained: Why is the crypto market crashing?

The sell-off within the crypto market continued Tuesday with Bitcoin and Ether falling to new 18-month lows. Bitcoin is the world’s largest cryptocurrency, while Ether is the number of two tokens. However not just the top two, all major cryptocurrencies have been buying and selling within the red lately, with the fall testing even long-term investors. What has triggered this latest crash, and is there a respite in sight for investors?

What has triggered the latest sell-off?

The fall started the final week Friday in sync with the sell-off within the US stock markets triggered by a higher-than-expected rise in inflation and the fears of the more aggressive rate of interest hikes by the US Federal Reserve. While crypto markets should ideally perform independently of the normal markets, they’ve, previously too, been delicate to actions within the mainstream financial world.

Monday brought more bad news as the top cryptocurrency lending firm, Celsius Network, froze withdrawals. In a blog post, New Jersey-based Celsius announced that it had frozen withdrawals and transfers between accounts “to stabilise liquidity and operations while we take steps to preserve and protect assets”. It blamed “extreme market conditions” for the move and said that this action was aimed at placing “Celsius in a better position to honour, over time, its withdrawal obligations”. As of now, it has given out no timeline for the resumption of withdrawals.

Earlier in Could, the crypto market had taken a major hit after the stunning crash of the

TerraUST is an ‘algorithmic’ stable coin with its value backed by a sister token known as Luna.

The deep-red crash, which had worn out $40 billion of investor funds, had shaken the system as a result of stablecoins aren’t vulnerable to wild fluctuations like other cryptocurrencies.

What’s Celsius, why does its ban on withdrawals matter?

Celsius is a crypto lender, which basically means it is a bank of the crypto world.

Crypto lenders allow customers to deposit their coins with them for interest, and then lend out cryptocurrencies to earn a return.

With assets of around $11.8 billion, Celsius is a big player in the market of crypto lending. Savings in crypto parked with these lenders are known to offer returns to the tune of 17% to 20%.

These financial services are easier to enter than the traditional banks, but on the flip facet don’t have any regulatory oversight.

Based on a Financial Times report, the value of assets parked with Celsius on May 17 was less than $12 billion against over $24 billion in December 2021.

How bad is the crisis?

That is the second major meltdown of the crypto market within a month. Given the overall unfavourable risk sentiment, a reversal of fortune seems unlikely soon.

On this latest crash, the crypto market’s value slumped below $1 trillion for the first time since January 2021.

After reaching the record high of $69,000 in November last year, Bitcoin has fallen almost 70%. It was trading within the zone of $22,000 Tuesday. The number two token, Ether, is down 75% from its November high of $4,869.

The latest crash is likely to hasten the process of government oversight. Within the US, two Senators Tuesday proposed legislation to create a regulatory framework for the cryptocurrency trade, reported the Associated Press.