Global Economy Feared To Hit Pain For Bitcoin And Crypto Investors

Bitcoin fluctuated around the $20,000 mark last night after days of turmoil fueling fears of a “crypto winter” that could send shockwaves through the global economy.

The digital currency’s nose dipped to $17,772 over the weekend as investors continued to rush for the exit.

With bitcoin down more than 30% this month and 70% since its all-time high of nearly $70,000 in November, a slight rally towards $20,000 has done little to calm nerves.

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Sinking Sense: With bitcoin down 70% from its all-time high of nearly $70,000 in November, a slight rally towards $20,000 did little to calm nerves

Other cryptocurrencies have been caught up in selling with Ethereum down 70% this year and dogecoin – which was created as a joke before gaining a sequel after catching the attention of Tesla founder Elon Musk – has dropped 90% since its peak.

The fallout has been hard felt, with many of the more than 2 million UK investors holding crypto assets now suffering heavy losses.

The crypto rush has been driven by ultra-low interest rates in recent years and central banks have used quantitative easing to flood the markets with cheap money.

Apart from the “loose” financial terms, they have also been seduced by high-profile celebrities who have been paid to sell the currencies in online advertisements, including Snoop Dogg, Matt Damon and Gwyneth Paltrow.

Other admirers include Paris Hilton and Reese Witherspoon – as well as Musk himself.

But panic has ravaged the crypto markets in recent days as fears of runaway inflation, higher interest rates, global recession and war in Ukraine paint the industry in quite a different light. .

Last week, crypto lender Celsius Network halted customer withdrawals as it was on the verge of collapse.

As the chaos spread, crypto exchange Binance then blocked users from accessing their bitcoin holdings.

Enthusiastic: socialite Paris Hilton promoted cryptocurrencies

Sentiment worsened two days later when the US Federal Reserve raised its main interest rate by three-quarters of a percentage point – the biggest increase since 1994.

The Bank of England then followed suit, raising rates by a quarter of a percentage point to 1.25%, its fifth straight hike. The Bank also warned that inflation could reach 11% this year.

Panic spread further as central bankers on both sides of the Atlantic signaled they would continue to hike rates aggressively this year to tame inflation.

After the steep falls, analysts were quick to warn that investors should prepare for a long, hard “crypto winter.”

Neil Wilson, an analyst at Markets.com, said: “Everyone is talking about the cold winds blowing from the crypto winter”.

“Rising interest rates, a heightened risk mood in the markets, a decrease in liquidity are all to blame – in short, the end of free money from the Fed means that the artificial pump that has created these active no longer works.”

Bitcoin’s popularity is even greater in the United States where it has achieved cult status with 16% of Americans saying they have invested in it or used it, up from 1% in 2015.

Its meteoric rise came despite warnings from authorities and leading investment bankers who repeatedly told investors that crypto had no value.

Wall Street veteran and JP Morgan chief executive Jamie Dimon last May called bitcoin “worthless.”

Hedge funds and corporations also have exposure to crypto. Coinbase, America’s largest cryptocurrency exchange, announced plans to lay off 1,100 employees while Babel Finance, another cryptocurrency firm, froze all accounts due to ‘unusual liquidity pressures’ .

Bad call: Reese Witherspoon, left, and Tesla billionaire Elon Musk, right, have also promoted cryptocurrencies

Three Arrows Capital failed to respond to requests from lenders for additional funding after its digital currency bets deteriorated, tipping the major crypto hedge fund into crisis.

But the most high-profile company to suffer is electric car maker Tesla. In December, he revealed he held 43,200 bitcoins, worth almost £1.6 billion.

They are only worth a fraction of that today.

Despite the loss, Musk showed no remorse, tweeting his support for the crypto industry and dogecoin on Sunday.

While for many investors crypto has been nothing more than a “babble”, analysts warn that the industry’s collapse could have serious consequences for the financial system, hitting traditional Wall assets. Street and London.

In 2008, prices for credit products built from subprime US mortgages fell, triggering a global banking crisis and recession and the loss of millions of jobs worldwide.

Likewise, crypto has made its way into the real financial system, with well-known asset managers like Invesco and Fidelity offering a number of exchange-traded products.

The fall in crypto markets has already coincided with a fall in equities, with US stocks suffering their biggest weekly percentage decline in two years last week.

Malcolm Freeman, director of brokerage Kingdom Futures, said: “Investors are devastated and the question is, are these investors also involved in stocks?”

He said if these investors “run the exit” and dump their stocks, the repercussions will be felt in other markets.

So, while the contagion to the financial system has not fully materialized, fears about the impact of a harsh crypto winter are growing.

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Global Economy Feared To Hit Pain For Bitcoin And Crypto Investors


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