Wall Street sees warning sign with falling cryptocurrency prices

Known as “crypto winter”, the low periods of the cryptocurrency market usually present a strong devaluation in the prices of cryptoassets. The current downtrend has been no different. At the beginning of 2021, the total amount of capital invested in the sector was around US$ 3 trillion (R$ 15 trillion). Currently, that amount has dropped by about 70%, which has Wall Street, the world’s largest financial center, worried.

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Similar to the stock market, crypto prices also showed strong devaluation after the United States Central Bank, the (FED), started a process of raising interest rates to try to end inflation.

In the traditional market, in the face of measures such as those being taken by the Fed, investors perceive them as harmful and sell their assets. For Wall Street, what is happening in cryptocurrencies is a much stronger version of what is happening in the financial system. There are drops and devaluations, but not in the intensity that has occurred with cryptos. And this all raises an alert, because the segments, although they are very different, have similarities.

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Experts point out that Wall Street has expressed concern due to the apparent fragility of the foundations that support the cryptocurrency industry. Recently, the digital currency Terra, until then a reliable project, collapsed in the month of May. In just a few days, the crypto melted over 99%, and caused investors to lose more than $40 billion.

Wall Street is worried about the crypto market, recent devaluations caused by the collapse of crypto projects, scares the world’s largest financial center (Image: Reproduction / Envato-Maciejbledowski)

Another event that scares Wall Street involves Celsius Network, a crypto platform that allows investors to deposit their tokens in exchange for yield. The organization has locked the accounts of about 1.7 million customers, preventing them from being able to withdraw the capital they invested. About US$ 10 billion (R$ 50 billion) are “stuck”, and users do not know if they will be able to recover the amount invested.

Brian Armstrong, CEO and co-founder of Coinbase, the largest cryptocurrency exchange in the United States, announced that the institution intends to lay off more than 1,000 employees. He also warned that a recession could make the industry’s problems even worse. “A recession could lead to another cryptocurrency ‘winter’ and could last for a long time.”

The increase in interest rates in central banks around the world (including our Selic), should maintain the bearish period in the crypto market. (Image: Reproduction / Envato-leungchopan)

Such events sparked the alert from Wall Street experts who follow the cryptocurrency market closely. One of them is Hilary Allen, a professor of law at American University. She said she was less concerned about the recent downtrend, which hits both traditional and crypto financial systems, than another little-remembered issue. Investment funds and investors sought bank loans to invest in cryptocurrencies. With the sharp fall in the market, these people lost capital that is not theirs.

The hope lies in the creation of laws that can regulate the sector. In a statement, the US Department of the Treasury reported that the recent turmoil highlights the urgent need for legislation for the sector, in order to mitigate the risks that digital assets pose.”

Read the article on Canaltech.

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