Bitcoin posts its worst quarter in more than a decade

Bitcoin on Thursday posted its worst quarterly loss in more than a decade. The world’s largest cryptocurrency has lost around 58% of its value in the second quarter of 2022, according to data from CryptoCompare. Bitcoin has fallen from $45,524 at the start of the quarter and was trading just below $19,000 on Thursday, the last day of the three-month period. This is the worst quarterly performance for bitcoin since the third quarter of 2011 when it lost 68.2% of its value. Bitcoin is down 39.8% in June and is on pace for the worst month ever dating back to 2010 when it became available on exchanges, Coin Metrics data shows. Meanwhile, ether is down 69.3% in the second quarter and is on track for its worst quarter on record, dating back to its inception in 2015, according to Coin Metrics data.

Coin collapse, 3AC liquidation

Cryptocurrency prices have come under intense pressure this quarter amid rampant inflation which has caused central banks around the world to raise interest rates and led to a sell-off in risk assets, such as stocks and digital coins. The crash in prices has also exposed issues with a several cryptocurrency companies and projects, particularly those in the lending space and firms that are highly leveraged. A number of high profile issues have come to light during the quarter. In May, the algorithmic stablecoin terraUSD collapsed along with its sister token luna. A stablecoin is a digital currency pegged to a real-world asset. TerraUSD was supposed to be pegged one-to-one with the U.S. dollar. Some stablecoins such as tether are backed by real assets like fiat currencies and government bonds. But terraUSD was governed by an algorithm which effectively failed. Then In June, crypto lending firm Celsius paused withdrawals for its customers citing “extreme market conditions.” Meanwhile, cryptocurrency exchange CoinFlex halted withdrawals for customers last week also citing “extreme market conditions.” But the company also claimed long-time crypto investor Roger Ver owes it $47 million after his account went into “negative equity.” Ver has denied that he owes CoinFlex money. And the liquidity crisis has also hit prominent crypto hedge fund Three Arrows Capital which has fallen into liquidation, CNBC reported on Wednesday. The latest downturn is being described as a new “crypto winter” and has also impacted growth and hiring at companies. Coinbase and BlockFi announced plans to lay off staff.

How does this cycle compare to the past?

Jacob Joseph, research analyst at CryptoCompare, notes that in the previous boom and bust cycle, bitcoin fell from a peak of $19,871 in the fourth quarter of 2017 to a low of $3,170 in the fourth quarter of 2018, suffering a drawdown of 8%. Joseph said a similar fall of 82.2% was seen in 2014 when bitcoin fell from a high of $1,239 in the fourth quarter of 2013 to a low of $221 in the second quarter of 2015. “This suggests that we could be in for a further drawdown period if the current poor macroeconomic conditions continue to persist,” Joseph told CNBC. Other investors have expressed bearishness. In May, Guggenheim Chief Investment Officer Scott Minerd, said bitcoin could drop to $8,000. At the time, the cryptocurrency was trading at around $30,000, representing a 70% fall.