Bitcoin dropped below the $20,000 mark on Saturday, adding to the massive crash in cryptocurrencies.
The price of the major cryptocurrency fell 9% in 24 hours to $1,9217.81, according to Coin Metrics data .
The last time Bitcoin fell below this level was in December 2020. Ethereum, the second largest cryptocurrency, also fell 10% to $997.75, its lowest level since January 2021.
Cryptocurrency investors are struggling with massive interest rate increases by the US Federal Reserve and a worsening liquidity crunch that has pushed major players into financial difficulties.
Credit conditions have tightened significantly as digital asset values have fallen across the board, prompting some lenders to demand partial or full repayment of loans they previously made to crypto investors.
The rapid rise in US interest rates – as a result of the Federal Reserve’s attempts to rein in high inflation – also exacerbated the sell-off of riskier assets.
The Federal Reserve raised interest rates by 75 basis points, its largest increase since 1994. This pulled back risky assets from all sectors, including stocks and cryptocurrencies.
Elsewhere, cryptocurrencies are still reeling from the fallout of two major currencies worth $60 billion last month.
The USTC algorithmic stablecoin TerraUSD, which was supposed to be worth $1, collapsed to $0.006826, taking with it a related coin called Luna.
This week, $3 billion crypto lender Celsius halted withdrawals. This has prevented users from accessing their funds and raised fears that it could face bankruptcy.
Cryptocurrency Bitcoin Crash
Celsius operates much like a bank, taking cryptocurrencies from investors and lending them to institutions to generate a return on deposits. It has a lot of assets in the so-called decentralized finance space.
Another major player, Three Arrows Capital, is also stuck in the midst of its liquidity crisis. A $10 billion hedge fund is said to be on the verge of bankruptcy after a downturn in cryptocurrency markets reduced the value of its holdings.
Three Arrows Capital was an investor in Terra, and bet on several currencies including Bitcoin, Ethereum and Solana.
Three Arrows Capital has been liquidated by $400 million by lenders. BlockFi was one of the companies that participated in those qualifications.
Zhou Xu, co-founder of the company, said it is in the process of communicating with stakeholders and is fully committed to working on it. The fund hopes to reach an agreement with creditors that will give it more time to come up with a plan. The company is still working on a solution.
He explained to the Wall Street Journal that Three Arrows Capital is exploring options including selling the assets and a bailout by another company to avoid a meltdown.