Experts see 'Mordor' ahead, the land of evil from The Lord of the Rings, as the next threat to Bitcoin.
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On Monday, Bitcoin dropped below $24,000 as the cryptocurrency market as a whole continued to
plummet.
According to CoinGecko, the
largest cryptocurrency by market value is currently trading at around $23,489, down 22% in the last seven days. Ether, the second most valuable
cryptocurrency, is also down to around $1,235, a 32
percent loss in the same time frame.
The $20,000 threshold is a dangerous
place to be. "Below $20,000 is Mordor," tweeted
Meltem Demirors, chief strategy officer at digital asset investment business
CoinShares, in May, referring to the mythical kingdom of evil in J.R.R.
Tolkien's fantasy novel The Lord of the Rings.
The downturn appears to be primarily caused by macroeconomic
developments. On Friday morning, the Bureau of Labor Statistics released
monthly inflation data from the consumer price index (CPI), revealing an 8.6 percent year-over-year increase in May. This
was higher than Wall Street consensus estimates and represented a new 40-year
high.
Furthermore, fear gripped the market following the collapse of the
Terra ecosystem, with failed algorithmic stablecoin TerraUSD (UST) and
cryptocurrency Luna (LUNC) becoming nearly worthless last month. On Sunday,
cryptocurrency lending platform Celsius halted all withdrawals, swaps, and
transfers between accounts.
Experts in the space see one "key" to
look out for when determining what's next for the cryptocurrency market and
whether a recovery is imminent.
"It's a massive stress test,"
Corey Miller, growth lead at Dydx, told
Fortune. Cryptocurrency "remains very highly correlated to macro
conditions, which have been extremely negative to begin the week."
"Additionally, the potential implosion of Celsius is fueling the crypto
carnage here, as some data on chain data suggests that the firm is becoming a
forced seller of a portion of their collateral here."
According to Bitwise Asset Management CIO Matt
Hougan, "we are seeing the aftereffects of the Fed-induced macro
shock ripple through the crypto markets." "It's a massive stress test
for the system." Most things pass the test in general, but not all of
them."
This will continue "until we hit bedrock and the market
excesses are cleansed from the system,"
according to Hougan. "This process of purging the excesses of the
previous bull market can be painful, and it may last longer than many people
expect."
But, in the long run, "this will pass,"
he said.
Even though the future appears bleak, Hougan remains optimistic
about the cryptocurrency market. The real question for him is, "Are there
any more shoes to drop?"
"If you believe the answer is no, this is most likely an
incredible buying opportunity," Hougan said.
"The challenge is that we don't yet know with certainty what the
downstream effects of Celsius unwinding will be, or if other entities will face
difficulties as well." The key is to keep an eye on whether the liquidity
cascade ends here or if there are further steps to take."
Nonetheless, the demise of UST and LUNC, as well as what is
happening with Celsius, is a "setback for crypto," according to
Michael Safai, managing partner at crypto trading firm Dexterity Capital.
"Many traders have also been aware that any negative news
could push Bitcoin below $20,000,"
Safai said. "The dominant attitude is one of frustration rather than shock
or fear."
In terms of the Mordor comparison, Frodo, the
protagonist of Tolkien's series, eventually returns from his journey to the
land of evil, but not without making a significant sacrifice. He wasn't the
same person he was when he went there.
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