Bitcoin investors have lost $7.3 billion in just three days as investors traded their holdings during one of the lowest points in the cryptocurrency's history in recent years, Vice reported. Earlier this week, the value of Bitcoin dropped below $20,000 for the first since 2020.
Until a few months ago, rising inflation was a cause of concern for economic markets. After the U.S. Federal Reserve stepped in and increased interest rates, the highest in about three decades, the fears of a recession have now engulfed the markets. Investors have withdrawn capital from the markets looking for safer investment options, and cryptocurrencies, far away from the last year's peaks, were hit even further.
On June 18th, Bitcoin dipped to $17,592, almost a quarter of its valuation in November 2021. The world's second most popular cryptocurrency, Ethereum, whose valuation crossed $4,500 last year, struggled to stay above $1,000 over the weekend, CNN had reported.
Long-term Bitcoin investors also hit
Citing a report from blockchain analytics firm, Glassnode, Vice said that about 555,000 Bitcoin were traded recently, in the price range between $18,000 - $23,000. This also included holdings from long-term investors, who had probably been holding on to their cryptocurrencies but decided to now sell them, fearing a further dip in the currency's valuation.
As many as 178,000 Bitcoin came from long-term holders, and since the selling price was below $23,000, Glassnode estimates that the investors realized losses of as high as 75 percent. Long-term investors that are still holding on to their Bitcoin may even have higher 'on-paper' losses. In a Twitter thread, Glassnode shared one of the tweets:
If we assess the damage, we can see that almost all wallet cohorts, from Shrimp to Whales, now hold massive unrealized losses, worse than March 2020.— glassnode (@glassnode) June 19, 2022
The least profitable wallet cohort hold 1-100 $BTC, and have unrealized losses equal to 30% of the Market Cap.
In a separate note, Glassnode has warned that the cryptocurrency market is now entering a "phase-aligned with deepest and darkest phases of previous bears" that would prevent even long-term holders.
Crypto exchanges see red, and so do crypto miners
With cryptocurrency prices finding new lows every week, crypto exchanges have begun to feel the pinch. Crypto exchanges have already announced layoffs, while other crypto companies face liquidity crunches and even the risk of insolvency. Cryptolenders such as Voyager Digital and BlockFi have secured credit lines to keep themselves afloat, Vice reported. Still, some may not see the other side of this crypto winter that is setting in.
Crypto miners should ideally be insulated from the trading aspect of cryptocurrencies. However, companies set up for mining Bitcoin have seen a steep decline in their stock prices over the last month, the Financial Times has reported.
A drop in Bitcoin prices, coupled with an increase in energy prices, has forced mining companies' machines offline to minimize their losses. This has been measured in a 10 percent drop in hash rate, the computational power being used to process blockchain transactions, since the beginning of the month. The impact of this decision has already shown in stock prices that have tanked by around 40 percent during the same period.
If the crypto markets do not show signs of recovery, we might also see takeovers and acquisitions in this space, as many companies have used debts to fuel their growth, and now lenders will look to consolidate their losses, Vice said in its report.