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Are we officially in a crypto winter?

Are we officially in a crypto winter?

As the U.S. Federal Reserve navigates stormy economic conditions, crypto markets continue to set new lows for 2022. [crbellete via Getty Images]

There’s never a dull moment on the blockchain. Here’s what you need to know this week:

Crypto markets crashed to 2022 lows. Bitcoin sank below a key psychological price level, but there may still be some silver linings.

Key cryptoverse quotes. Compelling takes from Mike Novogratz, Michael Saylor, Gene Simmons, and more. 

Noteworthy numbers. A Solana-based NFT marketplace achieves “unicorn” status and other key figures to know this week.

MARKET UPDATE

As global recession fears loom, Bitcoin drops below key price level. Are there any silver linings?

No sugarcoating it this week: It’s ugly out there. The S&P 500 is firmly in bear market territory, having notched its worst week since March 2020; Bitcoin sank as low as $17,567 on Saturday (before retaking $20,000 to start the week); crypto’s global market cap has retreated under $1 trillion for the first time since January 2021; and crypto firms like Celsius and Three Arrows Capital are facing liquidity issues. 

All of this is further exacerbated by the U.S. Federal Reserve’s increasingly drastic moves to combat the country’s highest inflation spike in 41 years — moves that could induce a recession

Like we said, it’s ugly at the moment. But it’s not all bad news this week. Let’s break it all down.

  • Bitcoin crashed below its 2017 peak of $19,783 — the first time the cryptocurrency has ever sunk below a previous bull run's high-water mark. While this price reversal is unprecedented, it’s not as steep a decline as the 85% slide BTC saw in the year after 2017’s peak (or the 99% nosedive BTC survived in 2011). Still, last weekend’s low placed more than 50% of BTC holders in the red, according to Glassnode, and left even veteran HODLers with sober outlooks about the emerging crypto winter. As Kraken exec Dan Held put it this weekend: “We are on the path of maximum pain.”

  • Inflation, and the Fed’s efforts to fight it, are putting pressure on both stock and crypto markets. After May’s historic 8.6% year-over-year spike in consumer prices, the Federal Reserve responded with an “unusually large” 0.75% interest rate hike last Wednesday, stoking fears that the Fed’s efforts to combat inflation would tip the U.S. into a recession. This marked a faster-than-expected reversal of the pandemic-era rate cuts and stimulus that previously boosted riskier assets like tech stocks and crypto with excess consumer cash. After the announcement, BTC and ETH dropped as much as 16% and 20%, respectively, before both rallying to start the week.

  • The crypto downturn has also prompted liquidity issues for several digital asset firms, including Celsius, Three Arrows Capital, and Babel Finance. Last week, crypto bank Celsius, which manages $11 billion in assets for 1.7 millions users, cited “extreme market conditions” as the reason it was pausing all withdrawals, raising questions about the source of its notably high 18% yield on crypto deposits. In a similar move on Friday, Hong Kong-based crypto lender Babel Finance halted service, citing “unusual liquidity pressures.” Meanwhile, crypto hedge fund Three Arrows Capital is reportedly facing potential insolvency after failing to meet capital demands from lenders.

  • Sheesh, so what about those silver linings? A Bank of America survey from this month indicates that 91% of respondents plan to buy crypto in the next six months, despite the downturn. And according to a Deloitte survey, 85% of U.S. retail execs think digital currency payments will become “ubiquitous” in the next five years. Meanwhile BTC’s mining power (or “hashrate”) — often cited as a proxy for network health and security — recently hit a new all-time high above 230 million terahashes per second. And this month, Ethereum transitioned to proof of stake on its Ropsten test network, a key milestone for its long awaited, energy-efficient upgrade.

Why it matters… This may be the first crypto winter to coincide with extensive macroeconomic setbacks, but it’s crucial to zoom out and take the long view. Since Bitcoin’s invention in 2009, the crypto market has survived numerous winters (with even more severe drops in BTC’s price) and each downturn actually produced key innovations — Ethereum, DeFi, and collateralized stablecoins were all largely developed during down cycles and became critical technologies during subsequent bull runs. So, what can we expect from this crypto winter? As billionaire crypto-enthusiast Mark Cuban put it: “Disruptive applications and technology released during a bear market, whether stocks or crypto … will always find a market and succeed.”

TAKES

From billionaire Mike Novogratz to Kiss’s Gene Simmons, the week’s crypto-iest quotes

Galaxy brain… According to Mike Novogratz, CEO of crypto-focused investment firm Galaxy Digital, Bitcoin “will lead the markets back out of this Fed tightening.” While acknowledging that the current crypto downcycle has been “more painful” than previous bear markets, Novogratz told CNBC that the tide could turn once the Fed becomes less hawkish on inflation.

Smooth Sayling… “#Bitcoin is the antidote to chaos,” tweeted Michael Saylor, the laser-eyed, BTC-boosting CEO of MicroStrategy, which is the largest corporate BTC holder in the U.S. As such, some investors were worried the software company would face a margin call on a $205 million BTC-backed loan it took in March. But Saylor told CNBC, “The margin call thing is much ado about nothing.”

DOGE defender… Dogecoin doesn’t “get the credit it deserves for helping onboard people into the space,” claimed Christine Brown, the former COO of Robinhood Crypto. The dog-themed meme-coin gets a “bad rap,” said Brown, who sees its lighthearted nature as a positive attribute that attracted new users to crypto by making it seem fun and accessible.

Rock ‘n’ hold all night… Kiss frontman Gene Simmons may no longer have a diamond-studded costume, but he does indeed have diamond hands. Last week, the 72-year-old rocker took to Twitter to announce his confidence in crypto: “Re Crypto currencies: (Write it down.) I Am A HODLER. I have not sold a single position since the downturn. I believe in the future. The Near Future.”

NUMBERS TO KNOW

$1.6 billion

The “unicorn” valuation of Magic Eden — the largest Solana-based NFT marketplace — after this week’s $130 million Series B funding round. Meanwhile, industry leader OpenSea, which just enabled Solana NFTs in April, has a valuation of $13.3 billion after a $300 million fundraise in January. (Solana is a popular alternative to ETH, thanks largely to speedy transactions and low fees.)

15,000

The number of people descending on New York City this week to attend NFT.NYC, the largest annual NFT conference. With triple the attendance from last year, this year’s fest will include everything from the premiere of Coinbase’s Bored Apes film to panels on wearable NFT fashion and the second annual NFT Awards, not to mention plenty of late-night after-parties from collectives like World of Women, Friends with Benefits, and The Heart Project.

$1,900

The current retail price of a Tag Heuer Connected Calibre E4 smartwatch, which comes with the ability to display your favorite NFT on the watch face along with proof of ownership. The luxury watchmaker recently started accepting more than a dozen cryptocurrencies as payment in the U.S., and its CEO, Frédéric Arnault, is the proud owner of a Bored Ape NFT, which serves as his Twitter profile picture. And perhaps his watch face, too.

Web5!?

The “extra decentralized” version of the internet that Block (formerly Square) CEO Jack Dorsey said a special division of his company called TBD is developing. Web5 would use Bitcoin’s blockchain to give people full control over their online identity and data — and eliminate the need for different accounts for separate apps. While some wondered why Dorsey skipped web4, crypto enthusiast Snoop Dogg tweeted, “Working on Web6 … U can smell it.”

TUNE IN

What is a Bitcoin spot ETF and when will the first one get approved?

Last October, the SEC approved the first-ever Bitcoin futures ETF, which enabled investors to gain indirect BTC exposure through a popular investment vehicle. But Proshare’s “Bitcoin Strategy ETF” doesn’t hold BTC directly — it holds something called BTC futures contracts. So, when might the SEC approve a “BTC spot ETF” that holds the cryptocurrency directly? 

In the latest episode of Around the Block, host Justin Mart dives into this question and more with Michael Sonnenshein, the CEO of Grayscale, the world’s largest digital asset manager and the firm behind the Grayscale Bitcoin Trust.

TOKEN TRIVIA

What is quantitative tightening?

A

One of the main monetary policies fueling inflation

B

A way to inject more capital into the economy

C

How the Federal Reserve is reducing its balance sheet

D

When a market falls more than 20%

Find the answer below.

Trivia Answer

C

How the Federal Reserve is reducing its balance sheet