Monday saw a massive selloff in crypto-currencies, as investors took in the inflation report, and low consumer sentiment, and decided to make a run to cash. Crypto-lender Celsius remains frozen, most assume with liquidity issues. Crypto exchange Binance temporarily halted transactions due to a “stuck” transaction, but resumed later in the day.
Bitcoin was at about $23,000 by Monday evening, having lost almost 16% in just 24 hours, taking it back to it’s value in mid-December of 2020. Ethereum lost 16.3%, landing at $1,229 during the same period. The fourth largest non-stable Crypto by market capitalization, Cardano’s ADA token, dropped 9.28%, going from $0.51 to $0.46, one of the less devalued tokens. Celsius Network’s CEL token dropped from $0.37 to $0.29, a drop of 21.5%. The rout also spread into Crypto-related stocks, and NFTs. Meanwhile the Nasdaq fell 4.7%, and the S&P 500 dropped 3.9%.
Since the beginning of the rout, total cryptocurrency market capitalization has dropped, from $3 trillion, down to $962 billion.
Chris Matta, president of the U.S. side of Toronto-headquartered investment manager 3iQ Digital, said, “Inflation is running higher and that has led to a liquidity crisis in crypto. In moments of a liquidity crisis, things start to break.”
The worse-than-expected reading from May’s consumer price index, coupled with a record low in consumer sentiment, dashed hopes and suggested the possibility of a recession, or even stagflation.
Steve Sosnick, chief strategist with Interactive Brokers, said the selloff was the product of May’s Consumer Price Index coming in worse than predicted, mixed with record low consumer sentiment, which he said suggested, “stagflation…in a nutshell.” He went on to point out that as the economy begins to slow, investors are thinking there will be less free money for speculative investors to continually leave laying in crypto, and less use for the currency overall. Noting that at present cryptos now are, “purely speculative.” he went on to say, “There’s nothing wrong with speculation in and of itself. But you have to realize that these are assets without much of a use case right now.”
Meanwhile, some are left wondering what is occurring with the Celsius network, which is still offline. While Binance resumed Bitcoin withdrawals Monday afternoon, Celsius has not resumed transactions, or offered any explanation for their shutdown beyond an initial vague statement referencing “market conditions.” Yahoo Finance inquired of Celsius whether it has enough assets to cover its current liabilities, however Celsius declined to respond. Estimates are the company holds approximately $12 billion in customer funds as of May 27.
Kavita Gupta, founding managing partner of the Delta Growth Fund, said Celsius’ move “is a classic example of lacking liquidity.”
Chris Matta noted Celsius may not be the only platform in trouble, raising questions of systemic risk. “I think everyone is scrambling right now to make sure they can meet liquidity requirements,” Matta said. “Such outcomes could have ripple effects throughout the space.”
