Market Trend 27/6 - 3/7｜Bitcoin has its worst monthly drop in 11 years
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While the trend for the crypto ecosystem, in general, remains the same as last week, with not much to add on that matter, a piece of recent news in Bitcoin analysis took the market by storm; Bitcoin recorded its worst monthly drop in 11 years, with the previous record registered in 2011.
Given that such news can bring nothing but a bearish outlook on enthusiasts and investors, it’s essential to take the appropriate time to establish why such a drop has occurred - which has nothing to do with the Bitcoin technology or crypto adoption, but a confluence of several misfortunes allied with the global macroeconomic scenario.
The market outlook for the following week remains the same as the previous week’s report. As far as Bitcoin’s recent news goes, the principles remain the same and the disruptive technology will continue to strive forward regardless of market conditions.
With that in mind, here are the top reasons for Bitcoin’s unprecedentedly downwards performance last June.
Macroeconomic Pressure
The first item is the macroeconomic pressure that is affecting markets around the world – and especially in the United States. Things aren’t looking bad just in crypto, but all derivatives markets as a whole (stocks, bonds, commodities, etc.)
There, the Federal Reserve (FED, the country’s Central Bank) recently made two very aggressive increases in interest rates to try to fight inflation, which increased fears of a possible recession in the country.
Such a move has caused US indices and stocks to experience a precipitous fall in recent months. The Nasdaq Composite, which focuses on high-tech assets, dropped 22.4% in the second quarter, the exchange's worst quarterly performance since 2008.
As recent analyses have come to show, Bitcoin and crypto in general have been showing immense correlation to the Nasdaq Composite. Therefore, with the stock market crashing, investors tend to sell risky assets — such as high-tech stocks and cryptocurrencies.
The Terra (LUNA) collapse
The collapse of LUNA, now called LUNA Classic (LUNC). Source: CoinGecko
Another reason that cements the fall of BTC is the algorithmic collapse of Terra’s LUNA crypto along with its collateral stablecoin UST.
Due to a mixture of programmatic failure between the two currencies, who relied on each other to balance their values in what is called a mint-and-burn process, LUNA’s minting became out of control from a few hundred million tokens to trillions - lowering its value. UST, an algorithmic stablecoin (not pegged to physical dollars), also lost its value.
This was an unheard event, as Terra was one of the top 10 global projects in crypto and arguably the most promising one driving the future of innovation. The results were catastrophic; investors were driven into an absolute panic in a matter of hours, and the entire project is currently under major investigations in the US and South Korea.
Celsius (CEL) pauses withdrawals
To make matters worse, crypto-lending company Celsius paused customer withdrawals in June.
The company offered a yield of more than 18% to users who used Celsius to deposit cryptocurrencies, often earnings rewards in their own token called CEL. After that, he loaned the money to people in the market who were willing to pay a high-interest rate for the loan.
Unfortunately, the major fall in crypto prices over the past few weeks put their earnings model to the test. Celsius cited "extreme market conditions" as the reason for pausing withdrawals.
On June 30th, Celsius said in a blog post that it was taking important steps to preserve and protect investments and explore available options, in an effort to pursue strategic transactions and a restructuring of our liabilities, among other avenues.
Three Arrows Capital defaults
Lastly is the liquidation of the hedge fund company Three Arrows Capital (3AC). 3AC defaulted on a loan worth more than $660 million from Voyager Digital, which resulted in the company's liquidation.
The event drove institutional investors into a cascading event of FUD (Fear, Uncertainty and Doubt), as deep-liquidity outflows from the market were witnessed.
Author: Gate.io Researcher: Victor Bastos
* This article represents only the views of the researcher and does not constitute any investment suggestions.
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