Major cryptocurrencies faced renewed pressure Thursday as the industry grappled with new challenges on numerous fronts.
Bitcoin (BTC-USD), the largest digital coin, slipped 4% and fell to its lowest level in the past three months. Other major cryptocurrencies dipped, with ether (ETH-USD) and BNB (BNB-USD) falling more than 5% and a stablecoin called tether going below its crucial $1 price.
Those drops dragged the total market value for all crypto assets to its lowest level since the banking turmoil began in March, according to Coinmarketcap.
Publicly traded crypto companies also fell, including the stock of Coinbase Global (COIN). Other crypto stocks including MicroStrategy (MSTR), Riot Platforms (RIOT), and Marathon Digital (MARA) sold off as well.
The new price pressures follow assurances from the Federal Reserve that it isn’t done hiking interest rates this year along with reports that crypto lending platforms Delio and Haru paused withdrawals after facing heightened requests from customers.
Regulators also are turning up the heat on the industry with two new lawsuits filed by the Securities and Exchange Commission last week against crypto exchanges Coinbase and Binance, alleging that 19 specific cryptocurrencies are securities and thus should be registered with the SEC.
Those tokens — which include BNB, SOL, ADA, and MATIC — have fallen 10-14% since the lawsuits.
“Until the regulatory environment is better, cryptos might struggle here,” Oanda market analyst Edward Moya said Thursday.
The multiple pressure points leave the industry with another problem: a lot of sellers and not enough buyers. Major trading firms that once might have acted as market makers have retrenched over the last year.
In the last week trading volumes have fallen on Coinbase and Binance. Liquidity is also lower on Binance’s US-affiliated platform, Binance.US. The amount of money available for trading on Binance’s US-affiliated platform fell 75% following last week’s SEC charges, according to Kaiko Research.
“Everything is coming together all at once and we have thin liquidity in markets now,” crypto investor and entrepreneur Thomas Dunleavy said.
Another sign of increased stress is the pressure on tether (USDT), the market’s largest dollar-pegged stablecoin by market capitalization and trading volume.
It fell as much as 0.20% between Wednesday and Thursday, its biggest one-day drop since November.
As of Thursday at 2:00 AM New York time, the $83 billion stablecoin, which isn’t supposed to fluctuate below its crucial $1 price, fell to $0.9958. It is issued by a company called Tether.
“Markets are edgy in these days, so it’s easy for attackers to capitalize on this general sentiment,” Tether’s chief technology officer Paolo Ardoino said over Twitter earlier Thursday.
Tether tokens are collateralized by other assets the company holds in reserves, including 85% in cash and cash equivalents such as US Treasuries, 6.5% in secured loans, and 4% in precious metals according to its March 31 reserve report.
When the stablecoin slips below its $1 peg, “verified” market participants also can make a profit by buying the token and redeeming it for other currencies.
However, in periods of heightened selling, the redemption process does not always keep up with the market.
In May 2022, the so-called “algorithmic stablecoin” terraUSD collapsed after slipping too far below its $1 peg, causing a rapid shift in sentiment that led to a loss in confidence for the coin by the market leading to its ultimate collapse.
During the month of terra’s collapse, Tether’s Ardoino told Yahoo Finance that Tether faced heightened withdrawals as investors rushed to liquidate $10 billion worth of holdings in 11 days.
Despite temporarily slipping as low as 95 cents during the period, it gradually regained its $1 price over the following weeks.