Cryptocurrency markets experience historic drops in Q2 of 2022

DNHN - The cryptocurrency market saw a historic decline in the second quarter of 2022 in the face of pressure to raise interest rates by global central banks and persistent inflation. At the end of the first quarter of 2022, the cryptocurrency market size exceeded $2,165 billion, by the end of the second quarter of 2022, the market capitalization had dropped to around $850 billion, a decrease 60.7% stunned investors in this market.

Bitcoin, the largest cryptocurrency by market capitalization, fell below $19,000 for the second time in June on June 30th, marking a drop of more than 59% in the second quarter of 2022. Adjusted for inflation, this is Bitcoin's steepest price drop, stronger than the third quarter of 2011 - when the cryptocurrency fell by 58% while there was still a lot of skepticism in the market when bring with you a new technology.

The virtual currency market has seen many ups and downs over the last decade, with capitalization reaching an all-time high of nearly $3 trillion in November 2021 when it was widely adopted during the pandemic, plus easing currency conditions. However, when the economy encountered a record high inflation environment and maintained in many parts of the world, the pressure of tightening monetary pressure has weighed on this market. Interest rate hikes and quantitative tightening make investors' risk appetite lower. They tend to prioritize cash flow back to safe assets such as government bonds and away from volatile market like the virtual currency market.

In a bear market, investors using high leverage (which are common in the cryptocurrency market) are at greater risk of being liquidated, further exacerbating the decline. Typically, a large investment fund Three Arrows Capital (3AC) fell into liquidation, which marked one of the biggest losses of the "crypto winter". 3AC, co-founded by Zhu Su and Kyle Davies, is one of the most prominent crypto hedge funds and is known for its highly leveraged investments. Founder Zhu Su has been extremely bullish on Bitcoin. However, the decline in the value of cryptocurrencies, which has wiped billions of dollars off the market in recent weeks, has hurt 3AC and caused a liquidity crisis in the company. On Monday (June 27), 3AC defaulted on a loan from Voyager worth $350 million in USD-pegged stablecoins USDC and 15,250 Bitcoins worth approximately $304.5 million.

Numerous investors' faith in this market has been shaken by the collapse of Terra Luna and stablecoin UST. On June 29, the US Securities and Exchange Commission (SEC) rejected an attempt to list Grayscale's Bitcoin Trust (GBTC), one of the world's largest Bitcoin funds, on the New York Stock Exchange. Another nudge came from Genesis Trading: a sister company to Grayscale, which could face hundreds of millions of dollars in losses due to its involvement with struggling virtual currency lenders.

The recent bad news signals a wave of widespread criticism against proponents of unbridled speculation in cryptocurrencies, costing investors dearly. The obsession with leverage is at the heart of the problem, as both lenders and hedge funds are tearing apart, turning client assets into an even riskier bet. During the storm of falling prices, there are still many investors optimistic about the cryptocurrency market including JPMorgan Chase & Co. strategist Nikolaos Panigirtzoglou, who believes that this is the bottom of the cryptocurrency market, with venture capital funds still going well, and there will be no more liquidations like in Q2 2022.

PV