First Mover Americas: Bitcoin Slides Toward $20K in Record Losing Streak as Fed, ECB Meet

Good morning, and welcome to First Mover. I’m Bradley Keoun, here to take you through the latest in crypto markets, news and insights. (Lyllah Ledesma is off.)

Bitcoin (BTC) neared $20,000 in European hours Wednesday, sliding toward a crucial psychological level not seen since 2020, as distress spread across crypto and traditional markets.

The price of the largest cryptocurrency by market value has now declined for nine straight days, a record losing streak in pricing data going back to the early 2010s.

Turmoil in traditional markets pushed the European Central Bank to hold a rare, unscheduled meeting on Wednesday to discuss rising borrowing costs. (And markets quickly bounced on the news.) In a statement, the ECB promised to “apply flexibility” in its campaign to tighten monetary conditions, in light of the “current market situation.”

The U.S. Federal Reserve is scheduled to conclude its latest closed-door meeting on monetary policy with a statement at 2 p.m. ET on Wednesday, and bond traders now fully expect a 0.75 percentage point interest-rate hike, the biggest since the 1990s. (Officials are expected to publish an update of their closely tracked “Summary of Economic Predictions,” known colloquially as the “dot plot.”)

Sentiment among investors remains bearish, CoinDesk’s Shaurya Malwa reported.

“Concerns around a sharp tightening of monetary policy are weighing on financial markets and are trickling down into cryptocurrencies through their influence on large institutional investors,” Alex Kuptsikevich, an FxPro senior market analyst, said in an email to CoinDesk. “It is not surprising that bitcoin and ether are dragging the entire cryptocurrency market down in such an environment.”

Read More: ‘Staked Ether’ Becomes Focus of Crypto Stress, From Celsius to Three Arrows

The rapid tightening of monetary conditions – part of a push by central bankers to tamp down fast-rising inflation – has sucked liquidity out of crypto markets, and now cracks are appearing across the industry.

Crypto lender Celsius paused all withdrawals earlier this week, citing “extreme market conditions,” leading to questions about the firm’s liquidity. The Wall Street Journal reported Wednesday that Celsius has hired lawyers specializing in business restructuring to help it navigate its thorny financial situation.

Prominent crypto fund Three Arrows Capital faced at least $400 million in liquidations and scrambled to lower its collateral levels by selling key positions. The Block reported Wednesday that Three Arrows Capital, popularly known as 3AC, has faced liquidations by crypto lending firms and is in the process of repaying lenders and counterparties.

Coinbase (COIN) and other big crypto firms are laying off thousands of employees, and analysts are on the hunt for fresh signs of distress. Those include scouring arcane market indicators like the “stETH discount,” CoinDesk’s Krisztian Sandor reported.

Some firms are coming out proactively with self-assessments of good health (or innocence in the eyes of traders).

Tether, the issuer of the popular dollar-linked stablecoin USDT, denied claims that its commercial paper portfolio is 85% backed by Chinese or Asian commercial paper, as reported by CoinDesk’s Jamie Crawley.

Tether described certain rumors to this effect as “completely false and likely spread to induce further panic in order to generate additional profits from an already stressed market,” in an announcement on Wednesday.

‘Go to zero’

According to FSInsights, an analysis firm, the combination of macro headwinds and over-leveraged yield strategies has resulted in the forced selling of cryptocurrencies in the last few days, wiping more than $200 billion in value from the digital asset market, Will Canny reported.

The “takedown of terraUSD (UST) and Celsius is long-term constructive for the industry,” wrote the head of digital asset strategy, Sean Farrell.

“Such public displays of ignorant capital destruction are often overlooked in the traditional finance industry (or take a very long time to unwind),” his note said. Fortunately, he wrote, crypto markets have the benefit of “iterating and improving at a more rapid pace.”

The prevailing sense in the market, though, is that there’s plenty of pain still to come.

The celebrity investor Kevin O’Leary says he isn’t ready to call a bottom in the crypto sector short of a major negative occurrence.

“You don’t get a bottom until you have an event,” O’Leary told CoinDesk this week. “In the crypto world, we need someone to go to zero.”

Today’s newsletter was edited by Bradley Keoun and produced by Parikshit Mishra.