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Crypto: Bitcoin falls by up to 30% since May inflation report

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Yahoo Finance's David Hollerith discusses the decline in bitcoin, Celsius pausing accounts amid the sell-off, and the outlook for crypto.

Video transcript

[MUSIC PLAYING]

- Welcome back, everyone. Bitcoin still struggling to stay above water after briefly falling around the $20,000 marker, right now, it's rebounded slightly to just about $21,200, just a little bit above that. Joining us to discuss this recent crypto route is Yahoo Finance's David Hollerith.

OK, so, David, it looks like we've found kind of this little hovering line, at least, around 21,000. But do we expect to break even further below that?

DAVID HOLLERITH: Yeah, Brad. So Bitcoin has lost about 30% in the last week. And that's mainly been sparked by May's CPI release that came out last Friday. Now, we saw the FOMC yesterday. And, obviously, Bitcoin, and the crypto market in general, had a nice rally.

That relief rally has sort of been cut off as of tonight and sort of looking-- I think the market-- like, you know, like stock market investors, crypto investors are sort of looking to see what's next. But the longer-term trend, I think, if we zoom back to November, has been, obviously, that the Federal Reserve has been tightening monetary policy. Many other central banks across the world have, too. And that's obviously not been great for risk assets.

And crypto assets have been hit particularly hard. And there are plenty of critics, I think, that would come out and say it's because they're mainly for speculation. I would just say, just looking at data, it's mainly because there's a lot of leverage that's been built in the system.

And so what we're seeing in the crypto sector is that there's a lot of people, as the tide is sort of rolling out, who are being caught off-guard with their trades. We've seen that with a few larger firms.

But I wanted to point out this PWC Crypto Hedge Fund survey that came out. So they surveyed a few about 77 crypto hedge fund managers in the first quarter of 2022. And sort of the largest percentage for, like, Bitcoin's price prediction for the end of this year was $75,000 to $100,000. This is around January. That was 42% of respondents.

And then, you know, it's still fairly high for the other-- for the 35% who answered and said it would be between $50,000 and $75,000. So that just gives you a framework to understand that, you know, also, along with the layoffs that have happened in the sector, like, a lot of the industry players have not really expected this or seen this coming the way it has.

- At the same time, we are starting to get a tone shift, you know, which has been really fascinating to me, David. The folks who we've talked to, even the people who are crypto bulls who we've talked to on the show-- and, traditionally, crypto bulls, no matter what was happening with the price, they would come on the show. Everything's gonna be fine. This is still gonna take over the world. This is the way it's gonna be.

And now, while they might say in the longer-term, you know, we are still going to see a big use case for Bitcoin and for blockchain-supported applications, they acknowledge that right now, there's gonna be a really rocky time. There's gonna be a lot of washout of some of the weaker players, the highly-levered players, as you alluded to.

And we're starting to see some of that, right? Celsius, one example-- there's a hedge fund that appears to be maybe blowing up. What is the latest that we're hearing on those players?

- Yeah, Julie. I mean, so Celsius and Three Arrows are two large crypto firms that are sort of under caution right now. Celsius paused all withdrawals, swaps, and transfers for its customer accounts on Sunday. And since then, we've not really gotten many details.

Luckily, because everything is on the blockchain, people can trace sort of what appears to be Celsius-linked wallets that are at such a size that they essentially have to belong to the company itself and not customers. And, you know, judging from those transactions, it looks like the hedge fund, Three Arrows Capital, they were hit with losses during Terra's collapse back in May.

And they also were sort of involved in a collateral trade with Ether, or a tokenized version of Ether called Staked Ether. And that's sort of gone south because it's relying on when the Ethereum merge happens, the transition to proof of stake. So, essentially, what's happening is this is a hedge fund in a hedge fund-like firm that are trying to get higher yields for their customers in one way or another. And, you know, as they're trying to do that now, it's looking to be much more difficult. And they end up more often to be on the losing side.

And now, in Celsius's case, there's questions about whether they're insolvent. "The Wall Street Journal" and "The Block" have reported that Celsius has now sort of partnered with-- or hired restructuring lawyers, as well as Citigroup, to help them advise on this. So the latest from Alex Mashinsky, the company's CEO, has just been that the team is working on it nonstop.

I mean, we've heard the same thing, or a similar message, from Three Arrows co-founder Su Zhu. And, you know, I think, right now, there's just a lot of ambiguity about what the outcome is going to be here. But the important thing to know is that as a lender, Celsius, you know, has a retail app on top of their platform. So this is something that affects, you know, anywhere from, you know, young professionals in New York to, you know, you plumber in Texas.

So, you know, this is gonna burn a lot of people if the worst turns out to be true. On the Three Arrows side, they're involved in a lot of borrowing with other crypto firms. So, you know, people are still trying to gauge what any kind of fallout could be. But there's definitely a lot of questions about how intertwined these firms are with others in the sector.

- Yeah, a lot of questions that are still not getting answers. And when I look at that tweet from Mashinsky, it's encouraging to see the community come together. I don't know. I don't know. It feels like more like a torches and pitchforks kind of coming together than necessarily everything's gonna be great.

But we'll see. We'll see. It remains to be seen.

DAVID HOLLERITH: I think the community will definitely come around for lawsuits is my guess.

- Yes, and we'll count on you to track those for us. Thanks so much, David. Appreciate it. Our David Hollerith--

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