More cryptocurrency lenders pause withdrawals as Three Arrows Capital and Voyager Digital file for bankruptcy, and Celsius pays off a $440 million bitcoin loan.
Investors have had a turbulent year, but those with a stake in cryptocurrencies have experienced it much more so.
From its record high of $68,000 in June, the price of bitcoin has decreased by about 70%, reaching its lowest point in 18 months. Almost all other cryptocurrencies followed in bitcoin’s footsteps, including Ethereum.
As investors struggle with rising inflation, the conflict in Ukraine, and changes in US monetary policy, the cryptocurrency market, which recently has been following the stock markets, has become a victim of the market-wide sell-off of risky assets. The cryptocurrency and stock markets are growing and collapsing in similar ways, despite not typically being associated with equities.
The crypto industry had a very hectic month in June. Due to the harsh market circumstances, some cryptocurrency firms announced layoffs and halted withdrawals. To stop losses, some people have even filed for Chapter 11 bankruptcy (The debtor in Chapter 11 usually remains in possession of its assets and operates the business under the supervision of the court and for the benefit of creditors).
Furthermore, some industry insiders are issuing dire predictions that the price of bitcoin and other cryptocurrencies might plummet much lower.
The founder of Guidefi and cryptocurrency specialist Charlene Fadirepo recently told NextAdvisor on Instagram Live that “bear markets can occasionally last up to several months.” According to those who follow the 20-week average for bitcoin, we should be around $20,000 to $30,000. I have no idea where it will go, but judging by historical patterns, we have been in that area.
The most recent crypto market fall serves as a timely warning to investors that investing in crypto assets carries additional risk and volatility, particularly during periods of heightened political and economic uncertainty. Experts caution against basing financial choices on news-related fear or sensationalism in either case. What investors should make of the most recent crypto news is as follows:
- Three Arrows Capital, also known as 3AC, a Dubai-based cryptocurrency fund, filed for Chapter 15 bankruptcy on Friday, confirming weeks of reports that it was experiencing liquidity difficulty as a result of the recent crypto market meltdown. Only a few days after it stopped allowing withdrawals from its site, famous cryptocurrency brokerage Voyager Digital also filed for bankruptcy, particularly Chapter 11 bankruptcy protection. Voyager Digital claimed in a statement that it maintains more than $350 million in cash at New York’s Metropolitan Commercial Bank on behalf of clients and that it has almost $1.3 billion in cryptocurrency assets on its platform. Sam Bankman-Fried, the CEO of FTX and a crypto millionaire, recently offered Voyager Digital and BlockFi, another faltering digital currency firm, lifelines. BlockFi recently received a $250 million revolving credit line from FTX, Bankman-cryptocurrency Fried’s exchange, and Voyager Digital received a $500 million financial commitment from FTX as well.
- Following the latest crypto market meltdown, more crypto lenders are halting withdrawals. Vauld, a cryptocurrency lender, made the announcement on Monday that withdrawals from its platform will be suspended. Nexo, a crypto financing company, is now looking at buying Vauld. Another cryptocurrency lender, Babel Finance, recently halted withdrawals, citing “unusual liquidity pressures” brought on by changes in the cryptocurrency market.
- According to on-chain statistics, cryptocurrency lender Celsius paid off a sizable $440 million bitcoin loan, which increased the company’s financial liquidity. Since the crypto market collapsed in June, Celsius has been in liquidation and owes Maker, one of the biggest decentralised finance (DeFi) platforms in crypto, hundreds of millions of dollars. This comes after Celsius temporarily halted consumer withdrawals. Despite paying off the loan, Celsius hasn’t said when it would start making withdrawals again.
Bitcoin is the largest cryptocurrency by market cap, and a good indicator of the crypto market in general, since other coins like Ethereum (and smaller altcoins) tend to follow its trends. Even though Bitcoin recently set another new all-time high, it was a pretty normal uptick for the crypto, which is notorious for its volatility. That’s not to say investors should take swings in either direction lightly, and this is also why investing experts recommend not making any major investment changes based on these normal fluctuations.
Cryptocurrency is still very new, and everything from innovation to regulation can have an outsize impact on investors.
Cryptocurrency volatility is nothing new, and you should be comfortable with this if you decide to invest.
Volatility can be attributed to an “immature market,” says Ollie Leech, learn editor at Coindesk, a cryptocurrency news outlet. Anything from a celebrity tweet to new federal regulation can send prices spiralling.
Because of this uncertainty, financial experts advise against putting a significant portion of your portfolio into a volatile asset like cryptocurrency. Many advise limiting your cryptocurrency holdings to less than 5% of your whole portfolio.
Day-to-day volatility may appear terrifying to novice investors. But according to Humphrey Yang, the personal financial guru at Humphrey Talks, dips are nothing to worry about if you’ve invested using a buy-and-hold approach. Yang suggests a simple fix – don’t think about your investment.
“Don’t check on it. That’s the best thing you can do. If you let your emotions get too much into it then you might sell at the wrong time, and make the wrong decision,” says Yang.
This is the traditional “set it and forget it” advice that many traditional long-term investors follow. If you can’t get on board, and the extreme dips continue to cause you to worry, then you might have too much riding on your cryptocurrency investments.
“Stop checking on it. The finest action you can do is that. If you let your emotions take over, you can sell at the wrong moment or decide poorly, warns Yang.
Many traditional long-term investors adhere to this classic “set it and forget it” counsel. You could have too much riding on your cryptocurrency investments if you can’t get on board and the sharp drops continue to bother you.
According to Douglas Boneparth, a CFP and the owner of Bone Fide Wealth, “the most important thing any investor can do, whether they are investing in bitcoin or stocks, is not just to have a plan in place, but to also have a plan they can stick with.” Even while buying the drop could seem appealing, particularly when it comes to an asset you truly enjoy, it might not necessarily be the wisest course of action right now.
online sources: time.com, nextadvisor.com, fxstreet.com
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