Inflation Deflates Cryptosphere; Market Cap Falls Below $1 Trillion

Crypto markets plunged more than 11 percent early on Monday, amidst bloodbath across financial markets as red-hot inflation reading in the U.S. triggered fears of an aggressive rate hike strategy by the Fed to combat inflation. Lending platform Celsius Networks pausing withdrawals too sent shock waves across the crypto world dragging down the market capitalization below the psychological $1 trillion mark, for the first time since January 2021.

Data released on Friday had shown the CPI increasing 8.6 percent, the largest increase since the 12-months ended December 1981. Markets were expecting the inflation to be steady at 8.3 percent. Core CPI rose 6 percent, cooling off from the 6.2 percent in April, but higher than the market expectation of 5.9 percent. The 34.6 percent spike in the energy index was the largest 12-month increase since the period ended September 2005. For the first time since the period ended March 1981, the food index increased more than 10 percent.

Asian bourses closed with deep losses. European markets are trading significantly lower. Wall Street Futures also portend large losses on opening. The Dollar Index inched closer to the 52-week high of 105. Bond yields have hardened across tenors and commodities have plunged. Gold is down more than 2 percent on an overnight basis.

Liquidity crisis at lending platform Celsius Networks rocked crypto markets on Monday after it announced it is pausing all withdrawals, swap, and transfers between accounts, citing extreme market conditions. The native Celsius (CEL) token, ranked 345 overall and 5th in the Lending and borrowing category dropped more than 45 percent overnight. Market cap dropped from $87 million on Sunday to $50 million.

Meanwhile, another cryptocurrency lending platform Nexo has come forward to acquire qualifying assets of Celsius after the withdrawal freeze.

In a related development, the USDT stablecoin issuer Tether, has clarified that while its investment portfolio included an investment in Celsius, representing a minimal part of its shareholders equity, there was no correlation between the investment and its own reserves or stability. Tether also clarified that its lending activity with Celsius has always been overcollateralized and has no impact on its reserves.

Overall crypto market capitalization is currently at $971 billion.

Bitcoin’s dominance stood at 46.6 percent, while Ethereum’s share slipped to 15.3 percent. Stablecoins dominance increased to 16.4 percent, allowing residual altcoins a market share of close to 21.7 percent only. The number of stablecoins among the top 100 cryptos has also increased to 10.

3rd ranked Tether (USDT) traded between $0.9979 and $0.9991 in the past 24 hours whereas 4th ranked USDCoin (USDC) traded between $0.9995 and $1.00 in the same period. 6th ranked BinanceUSD (BUSD) traded between $0.9985 and $1.00 in the past 24 hours.

56th ranked algorithmic stablecoin USDD of the TRON DAO temporarily lost its peg to the U.S. Dollar, trading between $0.9757 and $1 in the past 24 hours, versus the $0.9966 to $1 range on the previous day.

Bitcoin is trading at $23,620.23 after dropping to an 18-month low of $23,458.60. The leading cryptocurrency has shed 13.7 percent in the past 24 hours and 24.5 percent in the past 7 days. Only 46 percent of BTC holders are in the money at current prices.

Ether too dropped to an 18-month low of $1,209.92 earlier in the day. The leading altcoin has shed 15.4 percent in the past 24 hours and 35 percent in the past 7 days to trade at $1,235.06. Only 36 percent of ETH holders are in the money at current prices.

Ether’s losses exceeded those of Bitcoin amidst the de-pegging of 204th ranked Lido Staked Ethereum (stETH), a staked, DeFi variant of Ethereum. stETH is trading at $1,149.84, versus Ethereum’s price of $1,235.06. Though the staked Ethereum would be released after Ethereum transitions to Proof of Stake, anxiety surrounding The Merge and large dump by certain investors reportedly increased the selling pressure and widened the de-peg.

Despite the successful merge on the Ropsten testnet, developers opting to delay the testing of the Difficulty Bomb, a piece of code intended to eliminate mining on the chain, also added to the negative sentiment on Ethereum.

52st ranked Aave (AAVE), 63rd ranked THORChain (RUNE), 87th ranked Curve DAO Token (CRV) and 89th ranked STEPN(GMT) have made losses of more than 20 percent on an overnight basis.

Total value locked (TVL), the overall value of crypto assets deposited in DeFi protocols (including staking, lending and liquidity pools) dropped to $91 billion, down 14 percent on an overnight basis.

TVL of top ranked Maker DAO (MKR) dropped 6 percent on an overnight basis and 18 percent on a weekly basis to $8 billion. TVL of second ranked Curve (CRV) is down 11 percent in the past 24 hours and 28 percent in the past 7 days to $6.9 billion. AAVE and Lido too suffered declined of more than 35 percent on a weekly basis.

The carnage in crypto market has affected the prices of stocks with exposure to cryptocurrencies as well. The turbulence could continue as markets brace for the outcome of the Fed’s two-day meeting that starts on June 14. Anxiety lingers over whether the Fed would increase rates more than expected in the backdrop of inflation rising more than anticipated.

Source: Read Full Article