The latest cryptocurrency selloff reveals signs of trouble for the crypto industry, which was already facing layoffs and hiring freezes amid a global economic downturn.

Bitcoin plunged nearly 23 percent from Friday to Monday, hitting its lowest mark since late last year. Ethereum, the second most popular cryptocurrency, dropped 32 percent over the same period. The total crypto market cap dropped below $1 trillion for the first time since January as investors unloaded their digital coins.

The bitcoin rout accelerated after crypto lender Celsius Network announced that it would block customers from withdrawing or transferring digital assets to “stabilize liquidity” amid “extreme market conditions.” Crypto exchange Binance on Monday froze some bitcoin withdrawals, citing “a stuck transaction causing a backlog,” before fixing the issue.

The most recent crash has crypto skeptics wondering whether large swaths of the industry will survive a punishing economic environment that is driving investors away from risky assets. 

“Certainly, if you’re a crypto intermediary, you’re staring down dark, dark days here. This is not like the stock market where there’s a long-term track record of prices going up,” said Lee Reiners, executive director of Duke University’s Global Financial Markets Center.

“This might be it, frankly,” he added. “This could be the beginning of the end for cryptocurrency.”

Monday’s collapse coincided with a stock market selloff, indicating that investor fears over surging inflation and rising interest rates are hitting crypto just as hard, if not harder, than high-risk stocks.

“Now the clearest signal yet that crypto assets such as bitcoin and ether are moving in lockstep with equities has flashed, as inflation worries have sent stocks and crypto tumbling,” eToro analyst Simon Peters said in a note Monday, noting that the selloff was driven by institutional investors unloading both risky stocks and volatile digital assets. 

The Federal Reserve is expected to raise interest rates this week in its fight to cool down the nation’s 40-year-high inflation, a move that some economists believe will dramatically slow growth and send the U.S. into a recession.

That could spell trouble for crypto companies that enjoyed exponential growth in the last few years but are already beginning to downsize due to falling crypto prices. CEO Kris Marszalek tweeted Saturday that the company would lay off 5 percent of its workforce due to a “market downturn.”

Earlier this month, crypto exchange Gemini announced plans to lay off 10 percent of its workforce, blaming a “crypto winter” that has been compounded by a global slowdown and geopolitical turmoil.

Crypto giant Coinbase said this month that it would freeze hiring and pull job offers to individuals who had already accepted a job at the exchange. The company’s stock plunged 10 percent Monday and is down 85 percent from its all-time high.

“We always knew crypto would be volatile, but that volatility alongside larger economic factors may test the company, and us personally, in new ways,” L.J. Brock, Coinbase’s chief people officer, told employees in a recent memo. 

Investor confidence is the primary driver behind the success of cryptocurrencies, and it waned after Tether, the largest stablecoin, briefly lost its 1-to-1 peg to the U.S. dollar last month before swiftly recovering. 

Around the same time last month, TerraUSD, another stablecoin that was supposed to stay constant with the dollar, lost most of its value in a matter of days, wiping out tens of billions of dollars in value. The coin is now trading at less than 1 cent, leaving some of its investors with nothing and drawing the attention of federal regulators. 

Other crypto firms have come under fire for their practices. Twitter users on Monday pointed to Celsius’s terms of service stating that certain deposited funds “may not be recoverable” if the company goes bankrupt. 

Celsius previously came under scrutiny from regulators in five states that said that the crypto lending platform was offering unregistered securities and questioned how the company was able to offer generous returns to users to store their digital assets. 

Last week, Sens. Cynthia Lummis (R-Wyo.) and Kirsten Gillibrand (D-N.Y.) unveiled a bill to regulate cryptocurrencies that drew praise from the industry. The legislation would hand over enforcement to the Commodity Futures Trading Commission rather than the Securities and Exchange Commission, which has more aggressively investigated crypto firms. 

Still, even critics of the crypto industry say that some aspects of the bill are needed to boost market stability, such as a measure requiring all stablecoins to be fully backed by legal tender.

And crypto’s intense market volatility, coupled with fresh questions about the stability of crypto lenders and some prominent stablecoins, could spark additional attention from members of Congress.

“I think this is going to further catalyze Congress to implement some kind of consumer and investor protection when it comes to crypto products, because right now there are none,” Reiners said. “I’m sure members of Congress are starting to get calls from their constituents who have lost a lot of money on these platforms and are demanding action.”

Tags Bitcoin celsius crypto Cryptocurrency Ethereum
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