Global risk assets continued to be buffeted by U.S. inflation data in May and the Federal Reserve's June rate-setting meeting this week, as did cryptocurrency markets, including Bitcoin, which saw significant downside volatility.
On June 13, Beijing time, bitcoin's decline extended for the day to $23,981 / coin, down about 12.3% in 24 hours and the lowest level since December 2020, down more than 34% for the year. Ethereum fell to around $1,180.68 per coin on the day, its lowest level since January 2021.
As of 18:35 Beijing time, Bitcoin was trading at around $24,107 a coin, while Ether hovered around $1,234.
The broader sell-off has also continued, with cryptocurrency market values shrinking. According to CoinGecko, the total market capitalization of cryptocurrencies was around $1 trillion as of 18:35 Beijing time on June 13, losing about 11.6 percent in 24 hours. Last November, the total market value of cryptocurrencies topped $3 trillion.
Starting last Friday, cryptocurrencies collectively fell in response to U.S. inflation in May. Early Tuesday, Bitcoin fell to $26,876.51 a coin, its lowest level since May 12. Ether fell as much as 6.4% to $1,424.40 on the same day, its lowest level since March 2021. Dogecoin and Avalanche are down about 9.4% and 13%, respectively.
Several analysts told reporters that US inflation data and the upcoming Federal Reserve interest rate hike were the main reasons for the apparent drop in cryptocurrencies such as Bitcoin.
The U.S. consumer price index (CPI) rose 8.6% in May from a year earlier (8.3% in April and 8.5% in March), the highest since December 1981, driven by higher food and energy costs and higher housing costs, the Labor Bureau said June 10. The market had expected 8.3 per cent.
The two-year yield then rose above 2.9 per cent, while the 10-year yield fell to 3.02 per cent.
"The NASDAQ composite fell and Asian markets sold off as sentiment soured on Friday amid expectations of monetary tightening." Zhao Yaoting, global market strategist for Invesco Asia Pacific ex-Japan, said this could foreshadow recent volatility in local currencies and risk assets in emerging markets.
"Cryptocurrencies are still at the mercy of the Federal Reserve and stuck in a lock with Nasdaq and other risky assets." Antoni Trenchev, co-founder and managing partner of cryptocurrency lender Nexo, said, "We're seeing bitcoin predictions in the range of 10 to 1,000 at the moment, which shows the macro environment that cryptocurrencies are facing for the first time and the level of investor fear."
The 40-year high inflation data increased bets that the Fed would raise interest rates, adding to the uncertainty over whether it would be 50 basis points or 75 basis points. Meanwhile, liquidity is expected to tighten further this week as other major central banks such as the Swiss National Bank, the Bank of England and the Bank of Japan come to the fore.
Pan Helin, a researcher and co-director of the Digital Economy and Financial Innovation Research Center at the International Joint Business School of Zhejiang University, told reporters that virtual currency is a risky asset, and the driving force of risky assets is mainly monetary liquidity. At this time, global central banks are turning to tightening, virtual currency retreat has been a trend, is also inevitable.
As for whether to return to zero, Pan and Lin said, to see whether the belief of virtual currency to survive the global liquidity crunch, maybe not return to zero, but can be foreseen, the future will continue to fall.
In his view, Bitcoin is the issuance of many other virtual currencies guarantee, other virtual currencies are bound to encounter a chain reaction, there is a significant decline.
In addition, the de-pegging of staboins such as TerraUSD in May and the suspension of withdrawals by cryptocurrency lender Celsius further eroded investor confidence in the sector.
Celsius, a crypto lending platform, announced on its social network on June 12 that it was suspending all withdrawals, transactions and transfers due to extreme market conditions. "For the benefit of our entire community, we are taking this necessary action to stabilize liquidity and business while taking steps to preserve and protect assets."
Celsius said the platform was operating continuously with the ultimate goal of stabilizing liquidity and resuming withdrawals, transactions and transfers between accounts as soon as possible. But there is still a lot of work to be done to consider restoring the various option services, a process that will take time and may be delayed.
As of 18:35 on June 13, crypto long positions hit about $870 million in 24 hours, while bitcoin long positions hit about $364 million in 24 hours, according to CoinGlass.
Stablecoin markets also took a hit. For the first time since the TerraUSD(the fourth largest stablesoin by market capitalization at the end of 1Q22) was de-pegged from the US dollar, global stablesoin assets have experienced significant and sustained declines.
Analysts at Fitch Rating said in their research report last week that the market grew 15 per cent to $188bn in the first quarter of this year, but that growth reversed after the TerraUSD incident on May 11. Stablecoin assets were estimated at $162 billion as of May 30, according to Fitch.
Fitch expects stablecoin reserve portfolios to generally become more conservative. "Some of these will have risk profiles similar to those of regulated money market funds. Stablesoin USDC said that as of the end of May, 76% of its reserve portfolio was in short-term Treasury bills and the rest in cash."
As of May 30, 2022, the eight staboins had a combined market capitalization of $154 billion, accounting for about 96% of the total market, according to MarketCoinCap. The number of stablecoins increased from 75 at the end of 1Q22 to 100.
"Bitcoin is a highly speculative asset," Treasury Secretary Janet Yellen warned in congressional testimony last week. Bitcoin is often used for illegal financing, and its use is inefficient and highly speculative. Investors should be careful."