The global cryptocurrency market cap continues to fall today, shrinking by nearly 7% in the last 24 hours to US$1.38 trillion. Meanwhile, Bitcoin’s price has now fallen below US$33,000 for the first time since January this year, shedding 18% in the last week alone
“The market, reeling from the mid-May crash, has been unable to recover in terms of sentiment and retail inflows,” said Hunain Naseer, senior editor at OKEx Insights, in an interview with Forkast.News. “The crash wiped out a lot of retail investors who realized significant losses, and without retail interest, market hype remains muted.”
Ethereum also slid by over 21% over the last 7 days and is currently trading at around US$2,000, as Ether prices fell a further 8.78% in the last 24 hours.
“The upcoming ETH upgrade is a major event for the market, but a lot of the initial hype is likely to have been priced in during the major rally that saw ETH crossing $4K,” Naseer added. “Now the market is likely to wait for the actual execution and the follow-up before it can pick a direction for the next price movement.”
Speaking of market hype, heavyweight investor and head of Scion Asset Management Michael Burry has warned that the cryptocurrency market is overheated and overleveraged. Meanwhile, China’s crypto mining crackdown has now hit Sichuan and further decimated Bitcoin’s hash rate.
Although the BTC price managed to cross the US$40,000 mark last week after El Salvador announced its adoption of the cryptocurrency as legal tender, the high was short-lived, and Bitcoin is now below US$35,000 again. So far, reports of proposed legislation in Paraguay to make Bitcoin legal tender appear to be having little effect on BTC’s sideways trend.
“Even news from El Salvador failed to give BTC prices a major boost, firstly because the news was a good move, but not a game-changer per se, especially now that the World Bank has rejected support for the implementation,” Naseer added.
Elsewhere in the crypto world, altcoins are hurting even more. Other standout crypto price corrections over the last week include Cardano’s ADA, Dogecoin, Ripple’s XRP and Uniswap — which have fallen 15% , 22%, 22% and 21% respectively.
Burry warns of crypto bubble
Michael Burry, the head of Scion Asset Management who became a household name after a best-selling book and a movie “The Big Short,” showcased his winning bet against the housing market prior to the 2008 global financial crisis — is now warning investors against what he calls an over-leveraged “bubble” in crypto and meme stocks.
“All hype/speculation is doing is drawing in retail before the mother of all crashes,” Burry wrote in a series of tweets. “When crypto falls from trillions, or meme stocks fall from tens of billions, #MainStreet losses will approach the size of countries. History ain’t changed.”
Burry deleted the tweets soon after putting out the warning last Friday, as his Twitter activity earlier this year reportedly led to an inquiry from the U.S. Securities and Exchange Commission, due to his popularity with retail investors since “The Big Short” was released.
In a series of tweets back in March, which have also since been deleted, Burry also said: “$BTC is a speculative bubble that poses more risk than opportunity despite most of the proponents being correct in their arguments for why it is relevant at this point in history […] If you do not know how much leverage is involved in the run-up, you may not know enough to own it.”
While Burry famously was one of the first to call the housing mortgage bubble back in 2008, which was fundamentally caused by the growth of subprime mortgage credit that found its way into excessively risky and predatory products — the situation with crypto is not comparable as crypto is more transparent, some analysts say.
“The perspective is the same as always, for [Burry], which is that leverage can have a dramatic effect when people get liquidated and there’s not enough liquidity to even close the positions, which creates a race to the bottom.” said Justin d’Anethan, head of exchange sales at Eqonex, the digital assets firm, in an interview with Forkast.News. “A distinctive factor, though, is that in the 2008 crash, the leverage stuff was bundled up with other products to mislead people on the actual risk at hand. In the crypto space, it’s a bit more fenced out and clear. That being said, there’s a bit more leverage as well and less regulations.”
But others say Burry’s view that the crypto markets are overleveraged and poses a serious risk to crypto investors is still important to consider.
“There is a role for exchanges here. Huobi, for example, recently lowered its leverage offerings to 5x. Most crypto derivatives exchanges still offer up to 125x. As regulation comes into effect, we can expect more such limitations to come into place. Long-term investors in Bitcoin should celebrate such a development,” said Ben Caselin, head of research at AAX exchange, in an interview with Forkast.News. “Other than that, Michael Burry’s statements are speculative and carry the same weight as any other financial analyst.”
Burry remains a favorite among the meme-investor crowd. He helped lay the foundation for the surging retail frenzy that saw main street investors outplay the Wall Street hedge funds, after Burry himself took a bullish stance on video-game retailer GameStop Corp.
Bitcoin’s falling hashrate
China has accounted for more than half of the global Bitcoin production in recent years, but as the country’s cabinet continues its clampdown on Bitcoin mining, an exodus of miners from the country has begun. A casualty of the Bitcoin mining clampdown has been the network’s hashrate.
Sichuan is the latest of China’s four major mining hubs — which include Inner Mongolia, Xinjiang and Yunnan — to feel the effects of the government’s crackdown on mining operations. As Bitcoin mines are being closed the hashrate, or power supporting the Bitcoin network, is dropping significantly.
“The news that China has moved even more aggressively to limit the electricity supply and overall operations of bitcoin miners feels… not great, for sure. It’s interesting to see prices holding up relatively well actually,” said d’Anethan, of Equonex. “On a longer-term basis, BTC is still mostly range-bound, between 32K and 42K. Nothing to fret about. If anything, onchain data hints at less exchange inflows, a large stablecoin supply, miners holding on (not selling), and more coins being held long-term in wallets.”
AAX’s Caselin concurs that the actual damage to Bitcoin’s price has been relatively low “compared to altcoins.” The AAX exchange research head feels that in the long run, the miner crackdown could be a net positive for the network, but may intimidate the new breed of meme-investors.
“These developments are actually constructive as we can expect a better distribution of the global hashrate across different jurisdictions,” Caselin said. “Current price movements can be frightening for new retail traders, those same traders that might be tempted to invest in meme coins and other such hype-tokens.”
While OKEx’s Naseer believes the long-term fundamentals for Bitcoin and Ethereum remain positive, he said the overall crypto market is lacking a catalyst to reinvigorate upward momentum and “we are witnessing a consolidation phase.”
“There may be further drops along the way, since the longer a recovery takes, the weaker the market sentiment becomes.” Naseer added.
At the time of publication, Bitcoin prices are down 7.33% over the last 24 hours, and BTC is trading at US$32,622. Meanwhile, Ethereum has fallen 8% and Ether’s price sits at US$2,003, according to CoinMarketCap.