29 Jul 2022 Josphat Kariuki
The IMF: Further Crypto Selloffs Are Incoming
The International Monetary Fund (IMF) and its director of Monetary and Capital Markets, Tobias Adrian, rang the bell about a possible intensification of the selling pressure when it comes to cryptos. Furthermore, Adrian predicted more crypto projects to face liquidity issues and bankruptcy.
“There could be further failures of some of the coin offerings — in particular, some of the algorithmic stablecoins that have been hit most hard, and there are others that could fail,” Adrian added, stressing that cryptos would plummet even further in an event of a market-wide recession.
Adrian's warnings come after TerraUSD (UST) and Terra (LUNA) caused havoc in the crypto sector in May. As previously reported, the third-largest stablecoin lost its peg against the US dollar, causing immense selling pressure and an imminent “exitus letalis” for both the stablecoin and its bigger brother, LUNA.
Fiat-backed stablecoins are also at risk
Tether (USDT), the largest stablecoin to date and the third largest crypto project in the sector, could also experience a severe hit and de-peg, as Adrian stressed that “there’s some vulnerability there because they’re not backed one to one.”
Indeed, USDT reports showed that Tether’s backing includes some risky assets like equities, alongside cash reserves, which, according to the IMF executive, “is certainly a vulnerability that some of the stablecoins are not fully backed by cash-like assets.”
Crypto bulls wake up
And while international policymakers and watchdogs are trying to figure out a way to effectively regulate cryptos, the market seems to have exited the downwards spiral, which dragged the sector way below $1 trillion in market capitalization.
Despite a wild uncertainty in the crypto markets at the beginning of July, Etherеum managed to add 50% to its price tag in the last 30 days, while the largest crypto to date, Bitcoin, added 18%. The decentralized finance (DeFi) realm also marked a huge increase, as Polkadot, Uniswap, and Aave are increasing as well. Solana has soared 80% in the last month, making it one of the best performers in July.
Meanwhile, Kevin Murcko, founder, and CEO of Coinmetro tried to compare the 2022 bearish push with the 2018 ICO winter.
“We cannot really draw parallels between these two bear markets, as оn a macro level, the 2018 bear market didn’t have to deal with record high inflation rates as well as the macro-economical and geopolitical storms we are currently facing globally. ” Murcko noted.
The Estonian crypto exchange CEO added that during the 2018 crypto winter, most of the transactions happened between enthusiasts, but nowadays institutional investors are playing a big role in the crypto equation.
“Today, we have a large proportion of institutional investors doing the same thing they do in every market - leading the narrative, selling into buyers, and buying into sellers. ” Murcko added.
Another major difference between the 2018 ICO boom and bust and the 2022 crypto havoc is the maturity of the crypto sector. Specialists compare the 2018 ICO burst to the dot-com bubble of the early 2000s.
Furthermore, many of the ICOs made their way on top of Ethereum’s blockchain, which was still rather immature for such massive adoption.
Are bulls going to overcome the difficulties?
Even if the 2022 market slump differs from the 2018 crypto winter, one key aspect remains unsolved – global market uncertainty, and cryptos showed increasing correlation with global financial trends.
According to Murcko, the latest upwards swing may not be a detachment from the bearish momentum, but rather just a correction happening.
“Until we see lower inflation numbers, equity and bond markets coming back to life, as well as market sentiment becoming much more positive, we cannot be sure that the worst is over,” Coinmetro’s CEO concluded.
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