Why Crypto Prices Crashed on Saturday

What happened

After a terrible week for cryptocurrencies, the weekend is not starting off on the right foot either. Fear that the fallout from the potential collapse of the Celsius Network and Three Arrows Capital, which have faced challenges all week, will continue.

it doesn’t help that Bitcoin (CRYPTO: BTC) fell 7.5% in the past 24 hours as of noon ET, Ethereum (CRYPTO:ETH) fell 7.9%, and BNB (CRYPTO: BNB) is down 7.4%. Bitcoin has fallen below $20,000 and is trading at $19,043 as of this writing and Ethereum is below $1,000 at $993.24. These may just be psychological levels, but traders see them as important milestones for crypto stocks.

So what

News continues to focus on Celsius Network’s collapse, which was driven by the platform’s aggressive search for yield. Early reports show that Celsius lost money in the collapse of Luna as well as Stakehound as it attempted to offer users higher returns for their cryptocurrency than those available elsewhere in the market. The unwinding of the network of positions led to increased selling and panic in the market.

Related is the apparent collapse of Three Arrows Capital, a fund that invested in a variety of cryptocurrencies. He lost money on Luna’s Fall, which ultimately helped force the company to unwind leveraged positions in the crypto market. In some cases, the exchanges have liquidated the company’s positions to ensure that they are not caught in the fund’s risks.

These are the two largest companies currently unwinding their positions as far as we know, but there could be additional funds or decentralized finance applications that face risks as crypto values ​​fall. It’s a bit like the banking crisis of 2007 and 2008, when risks cascaded through the industry and were very difficult to stem.

Now what

Volatility may be normal in cryptocurrencies, but this is different. Groups that held a huge amount of cryptocurrency experienced financial difficulties and were forced to sell their digital assets because they became illiquid or had too much leverage.

One of the challenges of rapidly declining asset values ​​is that it exposes risks we didn’t know existed. Leveraged positions are being unwound and the illiquidity of certain assets is coming to light in ways that were not evident before.

i think there is still lots to love about the long-term crypto market, but this is clearly what is called a crypto winter and it could mean a prolonged decline in asset values. Until leverage and speculation are reduced in the market, we may face falling values. But for long-term investors, it’s time to accumulate while everyone else is selling.

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Travis Hoium has positions in Ethereum. The Motley Fool has positions and recommends Bitcoin and Ethereum. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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