Bitcoin tumble leaves the average buyer in the red

The cryptocurrency industry’s “bloodbath” worsened on Wednesday as bitcoin touched fresh lows for the year that put the average buyer of the world’s most popular digital asset deeper in the red.

Bitcoin dropped below $20,000 for the first time since July last year while ether, the token linked to the Ethereum blockchain, fell to nearly $1,000.

The declines mean Bitcoin has shed 70 per cent of its value since last autumn’s peak and is now trading below a widely followed market metric known as its “realised price” — the average paid by buyers for coins in circulation.

The declines have deepened the crisis that has gripped digital asset markets in recent months as investors exit high-risk assets and some of the biggest players struggle to meet their promises of supercharged returns.

This month the total value of the largest cryptocurrencies fell below $1tn, down from a peak of $3.2tn in November. Investor faith has been eroded as Terra Network, a popular stablecoin, collapsed and lending platform Celsius blocked its customers from withdrawing funds. Some of the world’s biggest exchanges including Coinbase and Gemini have cut thousands of employees to cope with the downturn.

“It’s a bloodbath out there. Hunker down. Make sure you can last,” said Changpeng Zhao, chief executive of Binance, the largest crypto exchange, on Twitter earlier on Wednesday.

Jay Hao, chief executive of OKX, warned investors to be mindful of leveraged positions in a volatile market. “Anything can happen. Things can always get worse. Adequate risk management is the best way to survive. Stay safe.”

Noelle Acheson, head of market insights at Genesis Trading, said bitcoin this week fell below its “realised” price — currently about $23,038, according to Glassnode — for only the third time in the last five years. In the other two cases — in November 2018 and March 2020 — this signalled that bitcoin was “very close to the market floor”, she said.

The $20,000 level also represents a significant threshold for the cryptocurrency because it puts the price close to the peak levels achieved during the last major run-up in crypto prices in 2017.

The pullback in crypto comes amid a broad sell-off in global financial markets as central banks start to reduce the economic support that has supercharged markets since the Covid-19 pandemic struck in 2020. The declines have been most painful for highly speculative assets.

“We are in the middle of a sell-off in global markets, which doesn’t help. There is no appetite for risk anywhere,” said Ilan Solot, partner at Tagus Capital, a crypto hedge fund.

He warned that falls below $20,000 for bitcoin and $1,000 for ether could create further dislocations as traders are forced to sell assets to meet demands for more collateral and margin on leveraged trades. Ether is considered a proxy for investor attitudes toward decentralised finance projects, which are often built using the ethereum blockchain.

“The leverage in the system has to be reduced dramatically. This can happen orderly or disorderly,” Solot said.

On Monday, Celsius, one of the largest crypto lenders, blocked its customers from withdrawing funds citing the “extreme market conditions”. The lending firm, which had $12bn in assets in mid-May and claims to have more than 1mn customers, had taken risky bets in defi markets.

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