Why the Cryptocurrency Market Was Turbulent This Summer
After two recent cryptocurrency crashes, the cryptocurrency market has not had a summer without upheavals. Decryption.
Afterwards the last two crypto crashes, the crypto market had no time to rest this summer. BFM Crypto invites you to review the major events that have undermined investor confidence over the past two months.
• The Tornado Cash case disrupts the ecosystem
This is probably the most celebrated case of the summer. On August 8, Tornado Cash, a cryptocurrency “mixing” service, was blacklisted by US authorities. The company has been accused of laundering more than $7 billion in cryptocurrency since its creation in 2019. Tornado Cash allows a user to deposit funds into a smart contract that eventually “commingles” with other funds. After this shuffling, Tornado Cash generates a private key for the user that allows them to withdraw their funds anonymously.
However, some voices point to the invasion of user privacy after the OFAC (Office of Foreign Assets Control) decision, such as the head of the Ethereum blockchain, Vitalik Buterin. In support of the platform, he admitted that he used it to make an anonymous donation to Ukraine. What’s more, the American association Coin Center, which defends the crypto sector, believes that OFAC “exceeded its legal authority by blacklisting certain Tornado Cash smart contract addresses”. So the matter is far from over.
• Bitcoin and Ether under pressure from the Fed
Several events in July could have had a significant impact on the price of cryptocurrencies. But the crypto market has so far been resilient. On the other hand, it seems to have lost steam at the end of the summer, especially in the face of major macroeconomic trends.
Indeed, in minutes released last Wednesday, the Federal Reserve (Fed) indicated as much plans to continue raising its key interest rates in September. While officials said that “at some point it will be necessary to slow the pace of rate hikes,” they also pointed to “the risk that (the Fed) may tighten policy more than necessary,” and stressed that the reduction in inflation “will certainly take time”. Similarly, as noticed by the specialized media The Block$210 million of long positions (in other words, investors betting on price growth) in bitcoin were liquidated on Friday.
The result of the races: Two major cryptocurrencies saw their value fall last week, returning to levels not seen in two months. According to Coinmarketcap, within a week, bitcoin lost more than 13% and ether lost more than 18%. Figures that are starting to worry investors.
• Combining good and bad news
This is probably a 2022 event, if it hasn’t already been postponed. The merge event is for the Ethereum blockchain to switch from a so-called “proof-of-work” to a “proof-of-stake” operation. The Ethereum Foundation has been keeping its community informed of its progress towards this transition through its blog. The “good” news is that after months of delays by the programming teams, a date has finally been found for the official transition: September 15th.
But the “bad” news, from a community perspective, is that, contrary to popular belief, the merger will not reduce airtime “gas” fees. As a reminder, “gas” fees are fees for doing a transaction on Ethereum and are currently high. These high fees in particular have led some users to switch to blockchains with reduced fees, such as Cardano or Solana.
“Gas fees are a product of network demand versus network capacity. The merger rejects the use of proof-of-work, moving to proof-of-stake for consensus, but does not significantly change parameters that directly affect network capacity or bandwidth,” can we read on to the foundation’s blog.
News that negatively affected the price of ether, which regained strength after the crypto crash and in the perspective of The Merge.
• The condition of Celsius would be much worse than expected
Bad news for 1.7 million Celsius users. The financial horizon of the cryptocurrency lending platform, which declared bankruptcy a month ago, is worse than expected. Celsius’ law firm, Kirkland & Ellis, did release a document reporting on the company’s economic health. So we learn that, contrary to mid-July announcements of a $1.2 billion hole in its cryptocurrencies, the latter would end up being $2.84 billion.
In addition, the company expects to have a cash balance of 130 million dollars at the beginning of August, which should increase to 90 million at the beginning of September, and then to 40 million at the beginning of October. The law firm expects the company to run out of cash by the end of October. Let us remind you that on June 12, in the context of strong tensions on the cryptocurrency market, the lending platform of 1.7 million users froze payments on its platform. Desperate, some clients have been sending letters to the judge in charge of the case over the past few weeks, hoping to get their funds back.