What happened
Forget "crypto winter," it's an all-out cryptocurrency apocalypse in the market right now. Top tokens Bitcoin (BTC 4.94%), Ethereum (ETH 10.49%), and Solana (SOL 7.84%) hit their lowest levels this year. For Bitcoin and Ethereum, these were lows not seen since late 2020/early 2021. Late last night, Bitcoin, Ethereum, and Solana traded as low as $20,951, $1,095, and $26.06, respectively.
As of 11:30 a.m. ET, Solana has bounced 10% over the past 24 hours, with Ethereum eking out a small gain of 0.7%. That said, Bitcoin is currently in the red, dropping another 2.6% over the past 24 hours, though still well above yesterday's lows.
These incredible moves lower among top tokens many view as stores of value appear to be driven by three key factors.
The first is a deteriorating macro environment for risk assets. The Federal Reserve is set to hike interest rates again tomorrow. And following a rather dismal CPI print earlier this week, it's now widely expected that this hike will be of the 75-basis-point variety (only 50 bps, or 0.5%, was previously priced in).
Secondly, potential systemic fallout from crypto lender Celsius (CEL) continues to reverberate across the sector. On Sunday, Celsius announced it was freezing withdrawals, signaling that liquidity and solvency may be an issue for this lender, which could have broad impacts on the crypto market. Adding to this intriguing story were rumors that Celsius CEO Alex Mashinsky had been arrested by the FBI.
Finally, Binance, the world's largest crypto exchange by volume, also announced yesterday that the exchange was freezing some Bitcoin withdrawals. This was blamed on a "stuck transaction" which caused a backlog on the network's back end. While this problem appears to be resolved, questions are now permeating the sector around just how stable the crypto ecosystem is to price shocks.
So what
There's a lot of news to take in right now. In many ways, this week has been one of the most eventful for crypto investors in some time. Indeed, while many investors would hope for some semblance of normalcy to take over at some point, it appears negative catalysts continue to find a way to float to the top in 2022.
There's not much investors can do about the macro environment. Liquidity is going to be pulled from the system from some time, and this will have its effect on the crypto market for sure.
However, it's the potential systemic risks relating to crypto lenders and exchanges that's now worrying investors. We all saw what happened when Terra's (LUNA 4.63%) stablecoin ecosystem imploded. If lower crypto prices mean stablecoins, crypto exchanges, and lending platforms won't work, that doesn't make for a bullish long-term case for this sector.
Now what
To be fair, the crypto market hasn't gone through a true "stress test" via a recession yet. And while we can debate whether we're already in a recession, or if a recession will even materialize, it's clear that this environment is perhaps the most unstable the crypto market has seen since its inception.
Accordingly, 2022 is shaping up to be a volatile year for investors. While I'd like to be able to call a bottom for these top tokens, until there's some signs of capitulation in the markets, it's unclear we're close to the end of the selling. I'm buckling in for what could be a very bumpy ride right now.
