Crypto investors were given a small glimmer of hope as Bitcoin enjoyed a slight rebound after one of the most turbulent periods in recent times.
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While it looked like Bitcoin was going to plunge below the $20,000 mark, Thursday saw Bitcoin recovering to make modest gains and rise 3% to be above $21,000. A market value of $20,000 has often been viewed as being the ‘bottom’ of Bitcoin’s current market cycle.
Bitcoin is still trading at its lowest levels since December 2020 which saw a spectacular fall following record highs of $69,000 the previous month. There were also slight rises for other cryptocurrencies such as Ethereum.
It follows a torrid time on the crypto markets with Bitcoin losing 25% of its value in a single day last week. Much of this fear was triggered by the announcement from the crypto bank Celsius that it would be suspending withdrawals.
Plus with crypto hedge funds like Three Arrows Capital taking extraordinary measures to show that it is still solvent, it’s going to take the markets plenty of time to recover.
Elsewhere there were massive concerns about the Tron DAO reserve project when it announced that it would be withdrawing over $100 million from the Binance exchange in order to prop up its stablecoin. This was supposed to be tied to the value of the dollar, but had recently slipped to $0.97.
Plus with the crypto exchange Coinbase making the announcement that it is laying off over 1,000 employees, it doesn’t paint a pretty picture for the short term future of cryptocurrencies.
What’s causing the crypto bloodbath?
This week has been disastrous for many more cryptos beyond Bitcoin. Other hard-hit cryptocurrencies include the likes of Ethereum, Cardano and Solana. Obviously, there have been many cycles of economic turbulence that have hit crypto markets before, but that fact hasn’t stopped lots of investors rushing to crypto exchanges to withdraw their digital assets.
Many investors had hoped that cryptocurrencies would be able to run in parallel to normal economic systems, but it seems that cryptos aren’t immune to the shockwaves rippling through the global economics.
The recent collapse of the Terra coin and its sister coin, Luna, has once again raised suspicion that even well-meaning stablecoin projects simply aren’t ‘stable’. While such stablecoins were introduced in a bid to counter the volatility of cryptos like Bitcoin, the fact that a faulty algorithm caused Terra to fail is a big wake-up call. All of which has put a real focus on other stablecoins such as Tether and USD Coin, even though those are backed by government bonds and fiat currencies.
Thankfully, Bitcoin’s recent modest price rise came at a time when US stock markets also enjoyed a relative bounce back. All of which suggests that crypto markets could recover in parallel with traditional markets in the long recovery from the pandemic.
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