Crypto Investors Dig In For Long Winter as Market Erases Two Years of Gains
Hope for a Short-Term Swoon Dashed as BTC and ETH Return to 2020 LevelsMarkets
It happens in every bear market — total capitulation.
For months, investors hang on to the hope that the market will shake off a short-term funk and get back to its bullish ways. Then bam! Something happens and the market knows… This is going to be a long-term bummer.
This time that something is called Celsius. And with the news of the CeFi exchange’s decision to suspend withdrawals this week, the crypto market turned a rout into something much worse: another potential nuclear winter.
All the gains Bitcoin and Ether made in the 2020-2021 bull run are gone. Bitcoin, which has dropped more than 7% in the last 24 hours, was trading at $22,400 in mid-morning trading UK time, according to CoinGecko. That’s the same level it was at in mid-December 2020.
And Ethereum, which has slipped 1% in the last 24 hours, has tumbled to $1,200. Last time it was in that neighborhood was January 2021. Even more jarring, on Monday ETH slipped below its all-time high during the rally of early 2018.
Meanwhile, the market capitalization for the crypto market fell below $1 trillion, its lowest level since January 2021, according to CoinMarketCap. And the market value of CoinGecko’s DeFi index, which comprises scores of leading tokens such as Aave, Uniswap, and MakerDAO, has plunged 26% in the last five days, to $36B.
As the reality of this new bear market sinks in, old crypto hands are recalling the bleak days of crypto’s nuclear winter. Tokens wallowed in the doldrums from 2018 to 2020 after the initial coin offering bubble burst.
Only this time it isn’t just crypto that’s getting hammered — the S&P 500 Index went into a bear market of its own on Monday following the release of inflation figures showing an 8.6% jump in consumer prices in May. With the Federal Reserve expected to raise interest rates as much as 0.75 or even 1% investors are piling out of risky assets such as stocks and cryptocurrencies. (A bear market typically unfolds when prices drop 20% over at least two months).
The correlation between crypto and stocks has become one of the most startling developments in the last year. Bitcoin, of course, should be the ultimate inflation hedge because it is disconnected from central bank policymaking, interest rates, and other devices in TradFi. Yet investors are treating Bitcoin the same as high-growth tech stocks.
As for Ethereum, investors are looking forward to The Merge, the blockchain’s shift from Proof-of-Work to Proof-of-Stake. Expected in the third quarter, the transition will further differentiate the workhorse of DeFi from Bitcoin and perhaps spur a fresh look from investors. If crypto nuclear winteris any guide,