Bitcoin and other cryptocurrencies plunged through the weekend and into Monday as high inflation sent investors running for the exits and caused major trading platforms to sixteen up.
Bitcoin was changing hands below $23,000 US at one point on Monday morning, down 20 per cent since Friday and enough to push the value of the world’s dominant cryptocurrency down to its lowest point since December 2020.
The sell-off prompted a major crypto exchange, called Celsius, to halt withdrawals on Sunday evening, meaning investors can’t take what’s left of their money out. “We are taking this action today to put Celsius in a better position to honour, over time, its withdrawal obligations,” said the exchange, which had roughly $11 billion in customer deposits on its books.
Celsius was offering depositors returns of more than 18 per cent in exchange for keeping their cryptocurrencies on the company’s platform. Another crypto platform Terra offered similar yields on customer deposits. But that was before a surge in customer withdrawals prompted the company’s so-called “stablecoin” Luna to collapse, losing 99 per cent of its value in May.
Quebec’s pension plan, the Caisse de depot et placement du Quebec, is one of the financial backers of Celsius, having participated in a $400 million investment into the platform last November.
“Blockchain technology has the potential to disrupt several sectors of the traditional economy,” the Caisse said at the time. “As digital assets grow in adoption, we intend to capture the right opportunities, while working with our partners toward a regulated industry.”
The Caisse did not immediately reply to a request for comment by CBC News on Monday.
Other crypto exchanges sixteen up
Other major crypto exchanges also had problems dealing with the deluge of trading orders, with Binance saying it has “temporarily paused” Bitcoin withdrawals.
Other crypto trading platforms announced staffing cuts. Crypto.com — which made a big splash with a glitzy ad featuring Matt Damon extolling the virtues of cryptocurrency that aired during the Superbowl — announced it would be laying off about five per cent of its workforce, or about 260 people, CEO Kris Marszalek said on Twitter.
That means making difficult and necessary decisions to ensure continued and sustainable growth for the long term by making targeted reductions of approximately 260 or 5% of our corporate workforce.
Another cryptocurrency company, BlockFi, announced that it was in the process of laying off 20 per cent of its staff.
“This decision was driven by market conditions that have had a negative impact on our growth rate and a rigorous review of our strategic priorities,” the company said in a blog post.
The sell-off brought the total value of all cryptocurrencies below $1 trillion US, a threshold it has not dipped below since January 2021. The value of crypto assets peaked at about $2.9 trillion in November 2021 before countries around the world started seeing inflation rise to its highest point in decades.
On Friday, data showed the US inflation rate rose to 8.6 per cent in May, the highest level in more than 40 years. Investors and market watchers had hoped the figure would ease from the 8.3 per cent level it hit the previous month, but instead it went even higher, a troubling sign that central bank efforts, such as rate hikes to rein in inflation, aren’t working .
“As inflation proves to be an even trickier opponent to beat than expected, Bitcoin and ethereum are continuing to get a severe bruising in the ring,” said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown.
“They are prime victims of the flight away from risky assets as investors freight about spiraling consumer prices around the world.”
Stock markets also sell off
The crypto market wasn’t the only thing walloped by fears over stubbornly high inflation Monday. Stock markets around the world plunged precipitously, as speculation mounts that the US Federal Reserve will have to raise its benchmark interest rate by 75 basis points on Wednesday, as it scrambles to rein in runaway increases in the cost of living.
Major US markets including the Dow Jones Industrial Average, the S&P 500 and the technology-focused Nasdaq were all down between three and five per cent on Monday.
WATCH | Inflation forces Canadians to cut back:
In Toronto, the benchmark stock market index was off by about 500 points or more than two per cent in the afternoon.
“Nobody anticipated the bear market given how strong the economy was doing and how we were expecting inflation to peak,” said Ed Moya, senior market strategist at foreign exchange firm Oanda, in an interview with CBC News.
“Once we start to get some inflation relief you’ll see markets become a lot more calm, [but] until we do, markets will remain jittery.”