Crypto Market Catastrophe Wipes Out More Than $1 Trillion In Market Capitalisation

The last several months have been a true test of endurance for cryptocurrency holders, especially a tough period for those who are Bitcoin holders due to the drop in the market. Since that November peak, Bitcoin has lost more than $600 billion in market value, and the total crypto market has lost more than $1 trillion.

According to CoinMarketCap, the price of Bitcoin and Ethereum, the two most valuable digital assets by market value, has decreased by more than 40 per cent since mid-November. In recent days, the price of Bitcoin has fluctuated drastically. Bitcoin's price has fluctuated around $40,000 in recent days, but it fell below $37,000 on 21 January—the lowest level since July 2021.

Other cryptocurrencies, like Ether and meme coins, have experienced just as big, if not greater, losses.

As per Bespoke Investment Group, this is the second-largest ever crypto valuation fall in dollar terms for both Bitcoin and the aggregate market.

As per Bespoke analysts: “It gives an idea of the scale of value destruction that percentage declines can mask. Crypto is, of course, vulnerable to these sorts of selloffs given its naturally higher volatility historically, but given how large market caps have gotten, the volatility is worth thinking about both in raw dollar terms as well as in percentage terms.”

With the plans by the Federal Reserve System—the central banking system of the United States of America—to remove stimulus from the market, riskier assets throughout the world have slumped. So with its intentions hitting both cryptocurrencies and stocks, a recurring feature in the digital-asset world has emerged, cryptos have twisted and turned in nearly the same way that stocks have.

Meanwhile, the Joe Biden administration is planning to announce an initial government-wide strategy for digital assets as soon as in February, tasked federal agencies with examining the risks and opportunities they present.

Stephane Ouellette, who is the chief executive and co-founder of institutional crypto-platform FRNT Financial, told Bloomberg: “Crypto is reacting to the same kind of dynamics that are weighing on risk-assets globally. Unfortunately for some of the mature projects like BTC, there is so much cross-correlation within the crypto asset class it’s almost a certainty that it falls, at least temporarily in a broader alt-coin valuation contraction.”

Crypto-related stocks also fell on 21 January, with Coinbase Global Inc. plunging over 16 per cent at one point and plummeting to its lowest level since going public in 2021, according to Bloomberg statistics. Similarly, MicroStrategy Inc. fell 18 per cent after the Securities and Exchange Commission stated that the company's unofficial accounting procedures cannot account for Bitcoin's rapid movements. The enterprise software company's Bitcoin holdings have basically turned its stock into a Bitcoin proxy.

However, according to data from Coinglass, a cryptocurrency futures trading and information platform, almost 239,000 traders had their positions cancelled in the last 24 hours, with liquidations reaching $874 million.

Cryptocurrencies have a life of their own, according to Kara Murphy, chief investment officer at Kestra Investment Management, but the latest slump is reasonable. She told Bloomberg: “It makes sense as people start to retrench a little bit, look for something that’s a little bit more solid, they’re gonna move away from crypto. On the margin, with folks becoming more risk-averse, crypto will suffer from that.”

In the case of India, as per the crypto players, unlike prior falls when Indian purchasers are more willing to buy, there was caution among crypto investors and traders, and the intensity of buying was lower than previous drops. Nischal Shetty, co-founder of WazirX said: "The buying intensity is definitely lower than the last several months. But this has less to do with India and more to do with global crypto sentiment. Indian investors are cautious. They’re taking the 'wait and watch' approach."

As per Economic Times, it is believed that the popular cryptocurrency, Bitcoin, has been lying around a narrow support level for some time, but a bigger sell-off in Asian markets has jittered the crypto market for the second time this month. However, such market swings, according to Minal Thukral, executive vice president, growth and strategy at CoinDCX, are part of the cycle, and the sell-off was not unexpected.