Bitcoin fell below $23,000 today in a new 52-week low during early trading hours representing a 67% downturn from the all-time high of $69,000 causing panic across the broader market. What happened?
Earlier this year, Terraform Labs, the startup team behind the Terra ecosystem and the USDT Stablecoin, announced it would acquire $10 billion worth of bitcoin to back its stablecoin reserves. This effort quickly failed and bitcoin was dumped onto the market while participants of the Terra ecosystem watched their wealth disappear.
Then, this past Friday it was reported that the stock market had experienced its worst week this year since January with the Dow Jones down 900 points causing futures contracts to drastically dip over the weekend.
Traditional market fears can easily be attributed to the upcoming Federal Open Market Committee (FOMC) meeting coming up this Wednesday where the Federal Reserve is expected to continue raising rates, which ultimately pressures the entire economy as uncontrollable levels of debts become harder to sustain and debt becomes more expensive.
On Sunday, cryptocurrency exchange Celsius Network announced that it would pause all withdrawals, swaps and transfers from the platform to “stabilize liquidity and operations.” Celsius had invested a large amount of its holdings in the aforementioned Terra ecosystem and was largely affected by its collapse. Nansen, an on-chain analytics company, reported an outflow of $420 million during the depegging event of UST as Celsius scrambled between May 7 – May 10.
As a result of current market conditions, the largest corporate holder of bitcoin MicroStrategy may soon need to further collateralize a $205 million bitcoin-backed loan it took out last month. At the time, it was reported that the company could be margin called if bitcoin fell below $21,000 unless it was to further collateralize the loan.
A loss of institutional trust combined with intensifying market fears has caused a cascading depletion of market cap as financial markets bleed.