Bitcoin fell over 10% between Friday 19 and Monday 22 August, trading below the $23,000 support, dashing hopes that a rally in the price of major crypto currencies could be maintained.
Bitcoin plunged by more than 5% in a matter of minutes on 19 August, down to a 3-week low, while Ether also dropped.
Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown, said: “Weakness has seeped into the crypto sphere as speculators retreated from highly risky assets amid expectation that higher interest rates were set to linger for much longer – after minutes were released from the US Federal Reserve indicating policymakers were intent to stay firmly on their monetary tightening path.
“This latest dark turn in the wheel of fortune demonstrates that speculating in cryptocurrencies is extremely high risk and is not suitable for the vast majority of people.
“Cryptocurrency values are driven entirely by the speculation that in the future they will have a meaningful role in the financial system. This makes it impossible to attribute a sound valuation to, or to make a call on, their current or future price.
“Their use as a means of exchange is very limited, and until they’re widely accepted, the price will continue to be driven by purely by speculation and right now with confidence plummeting, the use case seems even more shaky. There may be speculators waiting in the wings to buy what they may see as just a big temporary dip, but expect the volatility to continue as liquidity washing around financial markets evaporates as interest rates are hiked further.’’
Marcus Sotiriou, analyst at digital asset broker GlobalBlock, said that some believe the significant sell off on Friday was caused by Celsius Network, who are bankrupt, receiving approval to sell mined Bitcoin to cover their operations. “It has been speculated that Celsius sold 7,000 Bitcoin on FTX spot, which led to a cascade of liquidations. Celsius’ woes have resulted in extreme fear and uncertainty surrounding the stability of the crypto market over the past few months.
In contrast, Sotiriou said that Tether, the largest stablecoin by market cap “and a key component of the crypto ecosystem”, has announced that it is now working with BDO Italia, who will conduct monthly Tether assurance reports based on the stablecoin issuers’ reserves. “BDO are a top 5 accounting firm who could provide some needed clarity around Tether’s highly debated reserves.”
Tether’s biggest competitor, Circle are being audited by Grant Thornton.
Sotiriou added: “Risk assets struggle during periods of high inflation coupled with consumer weakness, hence leading to the recent selling pressure for Bitcoin and the crypto market.
“Nonetheless, institutional investment continues to pour into the crypto space. Between 2021 and 2022 investment has increased from $3.6 billion to $21.6 billion, including the biggest tech giants. The company behind Google, Alphabet, has remarkably invested $1.5 billion into blockchain and crypto firms, such as Fireblocks, Dapper Labs, Voltage and the Digital Currency Group.
“Despite the macro-economic downturn resulting in lower prices in the short term, the most adopted crypto projects won’t stay cheap for long.”
