The fall of cryptocurrencies surprises investors

The firmer position of the central banks of the rich countries in the fight against inflationwith treble in costs who leave the fixed income more attractive, rocked the cryptocurrency market. In the past week alone, the sector has lost no less than $300 billion in market value. With the devaluation, the total amount of these virtual assets fell below $1 trillion for the first time since January 2021 and is now approaching $900 billion, according to data from CoinMarketCap.

O bitcoins went from the level of 30,000 US$ per unit, a level at which it had stabilized for about a month, to almost 20,000 US$. The planet’s leading crypto asset has depreciated by more than 50% in 2022 and is operating at the lowest levels since late 2020, with a market value of US$400 billion – a far cry from the all-time high of US$1.2 trillion. US dollars a year ago.

“Fears of runaway inflation and the abrupt end of the era of cheap money have pushed cryptocurrencies over a precipice as investors shy away from risky assets,” says analyst Susannah Streeter of UK brokerage firm Hargreaves Lansdown.

The catalyst for the current shock was the release of the US Consumer Price Index (CPI), which jumped 8.6% year-on-year in May and hit its highest level since December 1981. The United States buried hopes that rising inflation in the United States may have peaked and renewed the risks of stagflation – a period of slow economic growth combined with high inflation.

More importantly for investors, the chart prompted a shift in expectations about the Federal Reserve’s plans. On Wednesday 15, the monetary authority was forced to abandon its commitment to raise interest rates by half a percentage point and promoted a hike of 0.75 points, the largest increase in a meeting monetary policy since 1994. The financial market already estimates that the US benchmark interest rate will peak above 4% per year in 2023, more than double the current range of 1.50% to 1.75 %.

a long winter

The collapse of digital currencies has led many industry experts to classify the current environment as a “crypto winter.” Analyst Edward Moya of broker Oanda believes that the risk of recession in the United States should keep cryptocurrencies at lower values, which has also affected stocks. “Rising recession fears are dampening appetite for risky assets, prompting cryptocurrency investors to remain cautious about buying bitcoin,” he says.

In a difficult scenario, the main companies in the sector are preparing for a crisis that could be long-lasting. Binance, the world’s largest cryptocurrency exchange, has laid off 18% of its workforce and suggested further cuts may be needed.

In Brazil, the 2TM Group, owner of Mercado Bitcoin (one of the largest brokers in the country), laid off 90 of around 750 employees earlier this month. The company also pointed to the global financial scenario, with high interest rates and inflation, as one of the reasons for the downsizing of the team. “The scenario required adjustments that go beyond the reduction of operating expenses, also requiring the layoff of some of our employees,” the company said in a note at the time.

Cryptocurrency lending platform Celsius Network has suspended deposit withdrawals, in an effort to “stabilize liquidity and operations while we take steps to preserve and protect assets.” According to the company, the decision reflects “extreme market conditions”.

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