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Bitcoin briefly drops below $20,000 again as pressure continues to mount on crypto market

Key Points
  • Bitcoin briefly fell below $20,000 on Wednesday as a number of factors from macroeconomic worries to issues with cryptocurrency companies continue to weigh on the market.
  • Inflation continues to remain high while central banks are also aiming for further rate hikes, sparking fears of a recession in the U.S. and elsewhere.
  • The crash in prices over the last few weeks, which has wiped off billions of dollars of value from the cryptocurrency market has exposed major liquidity issues at firms across the industry.

In this article

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Bitwise's Matt Hougan breaks down what crypto investors should watch after Three Arrows default

Bitcoin briefly fell below $20,000 on Wednesday as a number of factors from macroeconomic worries to issues with cryptocurrency companies continue to weigh on the market.

The world's largest cryptocurrency was last trading up by less than 1% at $20,359.25, according to CoinMetrics data. Earlier on Wednesday, bitcoin fell as low as $19,841.

Other digital coins including ether were also lower.

Bitcoin has been trading within a tight range in the last two weeks unable to make a major move much above $22,000.

"A narrative that could well play out for the rest of the year and beyond is guiding bitcoin lower today, one of looming recession and mushrooming levels of inflation," analysts at cryptocurrency exchange Bitfinex said in a note on Wednesday.

Inflation continues to remain high while central banks are also aiming for further rate hikes, sparking fears of a recession in the U.S. and elsewhere.

On Tuesday, U.S. stock markets fell and futures remained under pressure on Wednesday. Bitcoin has been closely correlated to movements in U.S. stock markets and tend to follow them lower or higher.

Vijay Ayyar, vice president of corporate development and international at crypto exchange Luno, told CNBC that bitcoin is likely going to trade between $17,000 and $22,000 "for a while, given the current market sentiment" and another expected interest rate hike from the U.S. Federal Reserve in July that continues to "weigh down all risk assets."

"Most bounces are being sold off for the past few weeks, typically categorized as bear market bounces, aiming to trap late buyers, only to have them sell off positions lower," Ayyar said.

Crypto liquidity issues

The crash in prices over the last few weeks, which has wiped off billions of dollars of value from the cryptocurrency market has exposed major liquidity issues at firms across the industry.

This month, crypto lender Celsius halted withdrawals for users citing "extreme market conditions." Crypto exchange CoinFlex also paused withdrawals for customers after a single client failed to repay a debt to the company.

Meanwhile, prominent crypto hedge fund Three Arrows Capital defaulted on a more than $670 million loan from Voyager Digital.

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What happened with Three Arrows Capital?

Sam Bankman-Fried, the CEO of cryptocurrency exchange FTX, has stepped in to rescue struggling firms including BlockFi and Voyager Digital by offering credit lines.

"The market is taking a breather after the falls. There are still systemic issues as people prop up various dominoes from triggering knock on effects," Charles Hayter, CEO of website CryptoCompare, told CNBC via email.