Bitcoin just finished its worst month since May 2021, losing more than 38% of its value in June, as of Thursday afternoon. Ether, the world’s second biggest cryptocurrency by market capitalization, ended the same period down by about 47%.
Though weakness in the digital assets sector is part of a broader flight from risk, confidence in the crypto market, in particular, has been rocked in recent weeks, as major companies face solvency crises.
In May, the popular U.S. dollar-pegged stablecoin project UST — and its sister token luna — imploded, tallying a $60 billion collective loss. Then in early June, lending firm Celsius, which promised users high yields for their digital currency deposits, paused withdrawals for customers, citing “extreme market conditions.”
Prominent crypto hedge fund Three Arrows Capital defaulted on a loan worth more than $670 million on Monday. And on Thursday, sources told CNBC that FTX plans to buy crypto lender BlockFi for $25 million. That’s 99% below BlockFi’s last private valuation, effectively “wiping out” the company’s equity investors, according to one source.
“There is still an aspect in crypto that we are waiting to see if another shoe will drop, if another entity will fail, if the credit cascade will continue,” said Matt Hougan, chief investment officer at Bitwise Asset Management, in an interview. “I think we have to get through the Fourth of July weekend and get through that quiet period in the market before we build in the second half of the year.”
To some degree, extreme volatility is the price of doing business in the digital asset market. In the last decade, bitcoin has experienced two prolonged periods of depressed prices, before subsequently rebounding. In the last crypto winter in 2018, bitcoin lost more than 80% of its value before bouncing back, eventually rising to its Nov. 2021 peak of around $69,000.
But a note from Bank of America on Wednesday struck a pessimistic tone. Analysts pointed to data indicating that U.S. consumers are more wary of the crypto market. Internal customer data shows a more than 50% decline in the number of active crypto users from its peak of over 1 million users in Nov. 2021, to less than 500,000 in May, the bank said.
More than $2 trillion in value has been erased from the crypto markets in a matter of months, punishing retail traders who bet big on crypto projects that were billed as safe investments.
The crypto market’s sub $1 trillion market cap is tiny compared to the country’s $21 trillion GDP or $43 trillion housing market. But U.S. households own one-third of the global crypto market, according to estimates from Goldman Sachs. A Pew Research Center survey also found that 16% of U.S. adults said they had invested in, traded, or used a cryptocurrency.
Still, many bitcoin enthusiasts expect another revival, and are buying at what they anticipate will be record lows. Michael Saylor tweeted on Wednesday that MicroStrategy snapped up an additional 480 bitcoin for about $10 million, bringing the company’s total holdings of the world’s most popular digital coin to around $4 billion.
“If your timeframe is a week, or a month, or even a quarter, I think there’s still significant volatility,” said Hougan. “If you have a time horizon measured in years, then yes, this is a great opportunity to think about entering the market.”