Warning: Highly-Volatile Crypto Market Ahead

Cryptocurrency investing is not for the faint of heart, the emotionally unstable, or those with a play-it-safe mentality. One day your portfolio could be soaring high, and the next it could look like all hope is being lost. It is imperative to do your own research, as well as understand both the risks and the rewards prior to investing your hard-earned money into such a volatile asset class. Fortunately, through all the doom and gloom caused by recent events, there is light at the end of the tunnel.

As the charts express, Bitcoin experienced a severe downward spiral over the past 90 days, resulting in an overall 48.53% loss in dollar value. Ethereum took on a similar approach, taking a sharp 60.07% dive into the red losing over half its value. #7 by market cap, Cardano (ADA), fell to $0.44 while Dogecoin (DOGE) dove to $0.05. These two altcoins experienced a 44.51% and 53.94% loss respectively since mid-March. The massive downturn has allowed long-term crypto holders to reminisce about the great bull-run days of December 2020 (not in a good way).

Additional top-performing coins such as Solana, Polkadot, and Avalanche suffered a similar fate, with the total crypto market cap now sitting below $1T, down from nearly $2T back in mid-March. As a result, many newcomers to the space and those with weak hands are being hit with fear, uncertainty, and doubt. Investors want to protect their initial investments, so they sell off their assets before they lose money. Unfortunately, the more who sell, the more the market gets flooded, causing prices to go down even further.

What ultimately caused the crypto market to crash? Was it one deciding factor, or a combination of events that culminated to form a fierce whirlwind of chaos and destruction? Let’s look at some of the details surrounding the crash as well as the oasis of hope that we have in the future of the crypto market.

The Terra (LUNA) Debacle

TerraUSD, or UST, was a trusted, well-known stablecoin that held its value at one US dollar. In other words, UST was pegged at that value regardless of positive or negative market movement. Unfortunately, it came as a shock that on May 9th, 2022, the stablecoin was not so stable and became de-pegged from the dollar as the price plummeted to $0.91.

When investors realized what was happening, they tried to exchange their UST for $1 worth of Luna, but Terra’s protocol maxed out at $100 million UST burned for Luna per 24 hours. Over time, the price of UST continued to go down as investors were panicking trying to sell. Ultimately, the price of UST dropped below $0.03, and Luna went from over $100 to less than a penny.

Many investors ended up losing large amounts of funds due to the Terra (LUNA) debacle. It was a system based on arbitrage which then got taken advantage of. Trust in the UST stablecoin quickly turned to fear, panic, and severe losses never to be recovered. Since then, Terra has launched a new version called Terra 2.0, but the company may have a hard time regaining users’ trust to deliver on their promises.

Celsius Network halt

Earlier this week, news broke out that the popular lending platform, Celsius Network, paused all withdraws on customer accounts due to liquidity issues. The multi-billion-dollar DeFi company appeals to crypto investors by promising returns on deposits made to the platform which then get lent out to other users. One of the main reasons they claim for pausing withdrawals, swaps, and transfers is to protect the community.

The Celsius team spoke up regarding their reasoning by stating, “We understand that this news is difficult, but we believe that our decision to pause withdrawals, Swap, and transfers between accounts is the most responsible action we can take to protect our community. We are working with a singular focus: to protect and preserve assets to meet our obligations to customers. Our ultimate objective is stabilizing liquidity and restoring withdrawals, Swap, and transfers between accounts as quickly as possible.”

News like this is tough to swallow, even if action was taken for the right reasons. Users of the service who have a large majority of their net worth invested would be the ones most hesitant to place additional funds into Celsius, or any lending platform for that matter. Not being able to withdraw funds creates immense fear and can cause investors to do and say things they may regret.

Rampant layoffs

Big tech giants in the industry such as Coinbase, Tesla, and Gemini have been hit by recent market conditions, causing thousands of employees to lose their jobs and have offer letters rescinded for new hires. Coinbase alone laid off 1,100 people, equating to roughly 18% of their staff. CEO Brian Armstrong claims that the layoffs are due to the upcoming crypto winter resulting in declining trading revenue, the company’s largest source of income.

In a note from Armstrong on the 14th, he states the following about their expenses: “As we operate in this highly uncertain period in the world, we want to ensure we can successfully navigate a prolonged downturn. Our team has grown very quickly (>4x in the past 18 months) and our employee costs are too high to effectively manage this uncertain market. The actions we are taking today will allow us to more confidently manage through this period even if it is severely prolonged.”

What doesn’t help the situation is talk about a pressing economic recession in the United States. Many companies are announcing mass layoffs to simply continue operating while keeping expenses down. CEO of Tesla, Elon Musk, announced that they are cutting salaried employees and focusing more on hourly staff in preparation for a plummeting economy.

Panic-selling

As we touched upon earlier, it takes strong hands to hold onto assets during turbulent times. In other words, if you do not possess a long-term vision for your crypto assets, the odds of holding onto them when the market goes down are slim to none.

Large selloffs can lead to large price drops, simply because there is more supply available on the market than there was prior. Between the UST debacle, the Celsius withdrawal freeze, rampant layoffs, and a pressing US recession, it goes without saying why investors are selling to protect their initial investments.

An oasis of hope

The crypto market, as it has in the past, will rebound in due time. In the meantime, let’s take a look at a solution that is especially useful right now during these uncertain times in our world economies.

The team at Cindicator understands the severity of the situation when it comes to protecting your investments both during market upswings as well as downturns. We have been working religiously on creating a product that yields steady returns even during turbulent times.

Soon we will be offering our Stoic customers a market-neutral product with industry-leading APY and no portfolio size restrictions. This fixed income, low-risk, automated trading strategy takes place on your Binance account, where you are in control of your funds.

While investing in lending protocols proved to be riskier than many thought, our fixed-income strategy is the best alternative on the market with zero exposure to Terra/Celsius-type risks. Discover more about our market-neutral strategy here! Stoic Fixed Income is live only for a limited number of users.