Crypto Market Sheds Over $1 Trillion in Latest Crash

VYSYN Ventures Weekly Insights #83: Bitcoin plummets to six-month low and Microstrategy loses $4 billion on paper

The previous week was turbulent for crypto traders and investors as prices plummeted to six-month lows with Bitcoin trading at half of its November peak. Several top crypto investors, including the largest Bitcoin corporate holder, MicroStrategy, suffered massive unrealized losses.

In this week’s VYSYN Release, we highlight the effects that the crash had on different crypto coins, factors that might have contributed to the crash, and various speculations rising amid the market crisis. We also examine the extent of institutional losses, including those of the leading crypto exchange, Coinbase.

BTC, ETH lose over 10% amid latest crypto dump

The global cryptocurrency market started a downtrend on Friday, January 21st, 2022 with Bitcoin floating around $40,000 early Friday morning. It continued its way down, dropping 10% within 24 hours. By Saturday morning, BTC had dipped below the $35,000 mark, according to data from CoinMarketCap.

The situation exacerbated quickly as the digital asset plunged even lower on Monday morning dropping to $33,027. This represented over a 50% drop from its previous all-time high (ATH) earlier in November. November 10th, 2021, now appears to be a different universe for crypto traders when BTC hit its current ATH of $69,000 that day.

(Source: TradingView)

The second-largest cryptocurrency, Ethereum (ETH) did not fare any better. ETH lost as much as 13% in the latest dump, and has shed roughly 35% since the beginning of 2022 dropping to lows of $2,160, according to data from CoinMarketCap. Several other crypto coins, including SOL, BNB, and more saw their values drop by more than 7% within 24 hours. The global cryptocurrency market cap lost over $1.4 trillion after reaching highs of roughly $3 trillion earlier in November.

(Source: TradingView)

MicroStrategy loses $4B in paper profit and Coinbase shares drop 15%

Bitcoin’s price decline in the past few days has wiped out a whopping $4 billion in paper profit for leading business intelligence and software company, MicroStrategy. MicroStrategy, the largest institutional holder of BTC, has been bullish on the digital asset ever since it made its first BTC purchase of $250 million in August 2020. The company had steadily increased its Bitcoin holding over the past 17 months, bringing its total holdings to 124,391 coins. At the previous ATH, MicroStrategy’s coins would have been worth a groundbreaking $8.4 billion. With the recent crash wiping 50% of BTC’s price, MicroStrategy lost $4 billion in paper profit, as the company pledged to continue HODLing for as long as necessary.

Leading San Francisco-based cryptocurrency exchange, Coinbase Global Inc. was also hit by the crash, as its share prices recorded the biggest single-session drop since its initial public offering (IPO) in April last year. COIN, the company’s ticker on the NASDAQ, fell as much as 15.7% on Friday. Analysts pointed out that as a crypto exchange, the performance of Coinbase shares is strongly connected to Bitcoin’s price movements.

Fed toys with the idea of issuing a CBDC

Analysts are concerned that the launch of a government-issued digital dollar would adversely affect the adoption of cryptocurrencies. On Thursday, January 20th, 2022, the U.S. Federal Reserve released a highly anticipated report that focused on the prospect of issuing a central bank digital currency (CBDC).

In the report, the Fed outlined several benefits and risks associated with issuing a CBDC. The report noted that a US digital currency could benefit households and businesses, providing them with a high level of liquidity and safety that existing cryptocurrencies can not provide. However, the Fed disclosed that it intends to engage with the public, Congress, and other stakeholders on the topic before it makes a final decision.

Additionally, with the Fed considering hiking interest rates and other aggressive monetary tightening policies, several crypto traders are afraid that these stringent policies targeted at controlling surging inflation might drain liquidity from the market. Given that the crypto market has been moving in tandem with the stock market in recent months, this fear is highly justified.

Speculations of a crypto winter

Amid several speculations about what could have fueled the recent crash, some crypto investors have hinted at the possibility of a “crypto winter”. This phrase refers to a sharp collapse in crypto prices, followed by a long period of reduced trading activity. The most recent crypto winter occurrence was in late 2017 and early 2018, which saw Bitcoin losing as much as 80% of its value from ATHs.

The former head of crypto at Meta, David Marcus, opined on Monday that the crypto winter has indeed arrived. However, he maintained an optimistic view of the situation. “It’s during crypto winters that the best entrepreneurs build the better companies,” he said. “This is the time again to focus on solving real problems vs. pumping tokens.”

https://twitter.com/davidmarcus/status/1485652386626428929?t=EqraVoiD1kcX_hLA3BDhdQ&s=19

On the other hand, L’Atelier’s COO, Nadya Ivanova, is convinced that the market is not in a crypto winter, rather it is “cooling off.” In an interview with CNBC’s Squawk Box Europe, she said, “Over the last year — especially with all the hype in this market — a lot of developers seem to have been distracted by the easy gains from speculation in NFTs (non-fungible tokens) and other digital assets. A cooling-off period might actually be an opportunity to start building the fundamentals of the market.”

What does 2022 hold for the crypto market?

Currently, the market is seeing a little stability as most of the coins have regained some of their losses and have returned to the consolidation phase. At the time of writing, BTC was trading at ~$37,500 and ETH was trading at ~$2,460, with the global crypto market cap sitting above $1.7 trillion, according to CoinGecko data.

The crypto market has historically rebounded after every crash. However, as the market matures and cryptos enter the mainstream, changes in price behavior have become apparent. While the overall picture is highly bullish, it remains to be seen when the next rebound will occur and the extent to which the market will dip before it recovers its losses.

About VYSYN Ventures

VYSYN Ventures is a longstanding venture capital company that specializes in funding and supporting disruptive startups in the blockchain and cryptocurrency industry. We have provided early-stage support to several projects that have grown USD market capitalizations of hundreds of millions and even billions. Our incubation program focuses on providing capital allocations, versatile marketing support, and tech assistance.