As the market continues to fall, investors worry about the domino effect – a massive drop in the value of a single asset. This can cause an international price crash that will hurt investors and the market as a whole. During a cross-border transaction, the price may plunge even lower. Whether this happens is yet to be seen, but it’s possible.
This is the case not just for Bitcoin – smaller cryptocurrencies are also worried. Lenders Celsius and Three Arrows have suspended lending in their crypto networks, and their future loan books will shrink. As a result, the total available credit in the crypto ecosystem will decline. The chief risk officer at B2C2 Japan, Adam Farthing, compared the situation to the global financial crisis in 2008. Bitcoin’s smaller sister token, Ether #2, was trading at $1,129 on June 20, after dropping below $1,000 over the weekend.
The downfall has a domino effect, as a further drop in the price will force crypto investors to sell their holdings to meet margin calls – the minimum amount of profits or losses that an investor needs to make in order to participate in a particular currency exchange. According to an expert, this downturn can be blamed on the Federal Reserve. The Fed announced raising rates by 75 basis points this week, after previously raising them by 25 basis points in March and 50 basis points in May. The Fed is tightening financial conditions amid a record inflationary period.
As a result, the price of cryptocurrencies has also fallen along with equities. US stocks fell by the most in two years over the weekend. Fears of rising interest rates and a recession are behind the sudden fall in the market. This fall in bitcoin’s value reflects the same pattern as that of equities. The overall crypto market capitalization now sits around $950 billion and reached a high of $2.9 trillion in November 2021.