Bitcoin’s plunge through $20,000 mark is a Minsky moment for crypto: ‘Psychologically, for a lot of people, it’s infuriating’

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Does bitcoin BTCUSD,
+7.72%
facing a breaking point? That’s what some investors, sidekicks and others might be contemplating, as the cryptocurrency’s descent gathers pace over the weekend. The world’s No.1 digital asset last traded at $18,654, down more than 70% from its high of around $65,000, with the broader crypto market giving the impression to some that he was in free fall.

“Psychologically, for a lot of people, it’s infuriating,” said Charles Hayter, CEO of CryptoCompare, a company that provides data and analysis on the crypto market.

Hayter, speaking to MarketWatch in a weekend interview, admitted that bitcoin’s inherent risks are part of its appeal.

Yves Lamoureux, the bitcoin-bullish chairman of Montreal-based macroeconomic research firm Lamoureux & Co., said swirling debt in the crypto market has amplified recent downward swings, with a number of companies highly indebted facing margin calls and version of this obscure business. Wall Street bank runs. “If my reading is correct, this is a massive sell-off of huge leverage in the system,” Lamoureux said.

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“It’s too easy as usual because bitcoin has that extra way [extending],” he said.

Indeed, Crypto lender Celsius Network LLC has reportedly hired restructuring lawyers from law firm Akin Gump Strauss Hauer & Feld LLP to advise it after the company told users it was suspending all withdrawals, trades and transfers between accounts, “due to extreme market conditions. ”

Don’t miss: Celsius abruptly cancels AMA session as company navigates ‘very difficult challenges’

Also see: Crypto is suffering from a ‘long-term capital management moment’: Michael Novogratz

On top of that, a major player in decentralized financial markets, or DeFi, a corner of the crypto world where traders often seek to make money on leveraged crypto, reportedly faced its own set of challenges.

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“We’re seeing rapid Minsky cycles in this space,” Hayter said.

Economist Hyman Minsky, who died in 1996, took the view that a period of distortions in the financial system ends very badly.

Signs of trouble in the crypto markets emerged in May with the collapse of Terra, an algorithmic stablecoin blockchain pegged to fiat currencies like the dollar, which are intended not to hold their value against the anchoring.

See: The 24-year-old quit his job at hedge fund powerhouse Citadel to build again on the Terra blockchain – which collapsed two months later

“Bitcoin has already gone down [and is] now sees significant downside follow-up,” Katie Stockton, market analyst at Fairlead Strategies, told MarketWatch ahead of the release of a report to clients on bitcoin technical levels on Saturday.

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She said bitcoin’s collapse was not 100% confirmed, but called the sentiment to have deteriorated badly. If the negative momentum continues, she says, she sees next support at $13,900, based on her analysis.

Hayter said the current situation should be seen as par with the course of bitcoin and its ilk, “with perhaps,” he speculated, “the next iteration allowing regulation to reinforce natural weak points.” .

As is typical of crypto die-hards, optimism reigns supreme: “I think bitcoin is doing well,” Lamoureux said. “It goes from weak hands to strong hands.”

While bitcoin is down 59% in 2022, the benchmark S&P 500 SPX stocks,
+0.22%
is off by almost 23%. The top-notch Dow DJIA,
-0.13%
is down 17.8%. Gold GC00,
+0.05%
rose slightly by 0.61% and the US dollar index DXY,
+0.98%
more than 9%.

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