Is it the ultimate tumble, the one from which no one will recover, or is it a jolt, a hollow that must be taken advantage of before a dizzying rise? This is essentially the question that agitates the community of cryptocurrencies, now digital assets. Over the weekend bitcoin plunged below the symbolic bar of 20,000 dollars to 17,599.73 dollars, its lowest level since 2020. But cryptos have become a social issue. They concern 300 million users and despite their collapse, the crypto.com platform extrapolates that the billion users will be reached by the end of the year. More cautious, the ECB estimates that one in 10 European households has invested in crypto-assets and notes that the sector remains very dynamic with 16,000 crypto-assets in circulation.
You have to be right
For Alexandre Stachtenko, director of blockchain and cryptos at KPMG, we must be right. “There are crises and realizing it is not the first time. There were crises in 2013, 2018, 2022. As the prices are higher, the impact seems much stronger. But when the bitcoin went from 1,200 dollars to 100, the collapse was much more serious than today when we went from 60,000 dollars to 20,000.” For comparison, bitcoin is at its level of last year, just like gold, while the euro lost 20% and Meta (Facebook) 30% over the same period. Big tech stars like Apple have lost nearly 25% since the start of the year. “You have to look at the fundamentals, continues Alexandre Stachtenko, they are good. There is a real adoption, both in terms of individuals and companies. Bitcoin is young, it is a risky technological market. The crash is a way to clean up the industry. Some cryptos will disappear. But bitcoin remains.”
Bitcoin is not based on anything
A point of view that does not differ from all observers. Natacha Valla, economist, dean of the School of Management and Innovation at Sciences Po, recalls that these digital assets do not offer any guarantee and that they have no intrinsic value. Same story with Christine Lagarde, President of the ECB who warned on May 23: “My very humble assessment is that it is worth nothing. It is not based on anything, there are no underlying assets to act as a safety anchor”.
At the same time, central banks like the US Federal Reserve are cutting policy rates to combat runaway inflation, which “pulls the rug out from under risky assets like cryptocurrencies,” says Ipek Ozkardeskaya, analyst at Swissquote. Bank. The ECB is preparing to follow the same direction until inflation is brought under control.
Accumulation of bad news
The accumulation of bad news makes you dizzy. A particular victim of the dogecoin collapse is claiming 258 billion from Elon Musk accused of having propelled the currency to absurd prices by his praise tweets. In fact, dogecoin, originally created to parody cryptocurrencies, lost half of its value in a few sessions. The terra (UST), a stable coin, in other words a digital currency in principle stable, a plunge of 1 dollar to less than 10 cents. The creators claimed, however, to peg its course to the dollar by using a complex algorithm ensuring the maintenance of transactions with another cryptocurrency. The melting of the crypto market got the better of the experiment and the terra collapsed. The negative news has cut off crypto investors’ appetite and cash flow has become.
However, the crash did not spread to all stablecoins. According to the Fed, the stablecoin market will represent 180 billion dollars in March 2022, of which 80% will be on the three main ones: tether, USD Coin and Binance USD. Unlike terra, the issuers of these three stablecoins have reserves of assets or cash that match the amounts issued so well that they have withstood the market shock.
Ether lost 68%
This is not the case with other major cryptocurrencies which have not resisted the disinterest of the markets. Ether, the second largest digital currency by market size, whose network supports a whole part of the crypto-asset economy, has seen its price reduced by 68% since the start of the year, sinking below the threshold symbolic of 1,200 dollars for one ether.
The fall in the market is destabilizing the entire sector, particularly cryptocurrency projects or companies that promised to build decentralized finance (decentralized finance, or DeFi). Celsius’ setbacks have precisely worried investors. This company, which presents itself as “an interest and loan platform”, offers investors to deposit their “historic” cryptocurrencies, such as bitcoin and ether, and to pay them in exchange for returns much higher than those offered. in the traditional market through loans or investments in new crypto-asset projects. It had defined the interest of traditional finance, with for example an increase in its capital of the Caisse de depot et placement du Québec (CDPQ). But assets placed with Celsius had seen their value melt away, with the fund claiming to manage $12 billion in mid-May, half as much as the end of 2021. “Due to extreme market conditions, we are suspending all withdrawals and transfers between accounts “, then had announced the platform.
Cryptocurrency platform Coinbase was also affected, with its price falling below $50, a far cry from $381 on its first day of trading on Nasdaq on April 14, 2021. The platform is suffering from a user leak that has caused a 35% drop in sales in the first quarter. The group wants to be optimistic despite everything, saying in a letter to shareholders that “these market conditions are not permanent”. Its managing director, Brian Armstrong, split into a series of tweets to justify a change in the documents transmitted to the stock market authorities, assuring that Coinbase was not “facing a risk of bankruptcy” and that the funds of its customers were “safe” on the platform. Coinbase will take steps to ensure that retail customers have the same “strong legal protections” protecting their assets as institutional customers, insured Brian Armstrong.
Discounted graphics cards
The consequences of this tumble run the framework of digital currencies. The miners, who provide the calculations necessary for the operation of the blockchain, are beginning to abandon their trades and their machines because of a remuneration that has become too low. As a result, they are selling graphics cards whose price is collapsing. 01 notes that the price of used AMD or Nvidia cards has dropped by 21% in the space of 15 days. Miners fear that the decline of digital currencies is a lasting phenomenon. An analog phenomenon had already occurred in 2018 when bitcoin collapsed in a matter of weeks.
Despite this avalanche of bad news, Binance CEO Changpeng Zhao told AFP that “the industry is not going to go away”. He acknowledges that the current crisis “creates concerns… Financial markets go up and down. If you go public, you can’t expect it to go up indefinitely.” He is confident that the storm will not wash away digital assets and that blockchain technology will stick around. Binance, which has 6,000 employees, has just opened 2,000 positions that the company plans to fill by the end of the year.
Bitcoin, a refuge against inflation
Fear of inflation may soon prompt investors to bet on bitcoin which is limited in supply and deflationary. “A regression is quite possible, explains an investor. We may find ourselves in a situation similar to that of 2008, when market uncertainties led to the creation of bitcoin and cryptocurrencies. It is not excluded that the “euro is experiencing upheavals. Bitcoin could then become a safe haven.” Although central banks and regulators have repeatedly warned against the will and lack of regulation of cryptocurrencies, analysts at JPMorgan bank had taken up the theory of some bitcoin supporters, who saw in the first cryptocurrency a digital golden shape. As the issuance of bitcoin is governed by an algorithm and not regulated by a central bank, the asset is protected from a currency issuance policy to support the economy and could theoretically protect against inflation, they explained. .
On the contrary, for some skeptical analysts in the sector, the fall in the price in recent months proves that bitcoin “is not an anti-inflation value, but a risk asset and not a good one”, summarizes Neil Wilson, analyst at Markets .com.