Crypto crash continues as bitcoin briefly dips below $21K

By: Thomas B.

The price of bitcoin briefly plummeted below the $21,000 threshold for the first time since December 2020 on Monday night as investors braced for a looming recession and reacted to difficulties at a major exchange.

Bitcoin was staging a slight rally and was trading near $22,000 as of Tuesday morning, but the leading cryptocurrency was still down approximately 9% over the last 24 hours, according to Coinbase data. The price is down nearly 70% from its all-time high of $69,000 achieved last November.

The selloff caused the overall market capitalization of the cryptocurrency market to sink below $1 trillion, according to CoinGecko data. The market was valued at more than $3 trillion in November.

Ethereum, the second largest cryptocurrency, was down more than 5% to $1,182.

This week’s volatility on the digital asset market occurred after Binance, the world’s largest cryptocurrency exchange, temporarily halted bitcoin withdrawals. Binance CEO Changpeng Zhao said the move was a “temporary pause” on “a stuck transaction causing a backlog.”

Selloffs in cryptocurrency market have also coincided with downturns in traditional assets over the last several months. Investors have sought to dump their riskier assets, such as cryptocurrencies and high-growth tech stocks, as the Federal Reserve enacts interest rate hikes meant to cool inflation.

The Fed is expected to hike interest rates by a larger-than-normal amount – potentially as high as 1% — at its meeting this week after a dismal May Consumer Price Index report that showed inflation rose 8.6%. Consumer prices have surged at their highs rate since December 1981.

The S&P 500 sank into a bear market during a major selloff on Monday that also saw the Dow Jones Industrial Average plummet more than 800 points. The tech-heavy Nasdaq index was down 530 points, or 4.7%.

The plummeting value of cryptocurrencies has already resulted in major consequences for several firms active in the sector.

MicroStrategy, a software firm that has bet heavily on bitcoin, faced a potential margin call for more collateral after the price dipped below $21,000, Bloomberg reported.

CoinBase, the largest publicly traded cryptocurrency exchange, revealed Tuesday that it would lay off 18% of its full-time workforce as part of cost-cutting measures meant to help the embattled firm withstand “crypto winter.”

Coinbase CEO Brian Armstrong – who had urged unhappy workers to quit the company earlier this week – said the company had expanded its headcount “too quickly” during an era of high growth in the tech sector.

“We appear to be entering a recession after a 10+ year economic boom. A recession could lead to another crypto winter, and could last for an extended period,” Armstrong said.

Several other crypto firms, including the Winklevoss twins’ Gemini, the Peter Thiel-backed BlockFi and Crypto.com, have also indicated plans to cut jobs in response to the crash.