Cryptocurrencies had a tough day on Sunday after a healthy rally last week. But in cryptocurrencies, we have seen recently that the momentum does not last long.
Starting at 4:00 pm Eastern time, Bitcoin (CTB -2.05%) has dropped 3.5% in the last 24 hours, Ethereal (ETH -2.79%) fell 4% and doecoin (DOGE -3.23%) has fallen by 3.8%. But over the past week, the same cryptocurrencies are up 7.4%, 8.7% and flat, respectively.
More pain is being reported in the crypto lending space, as exchange Blockchain.com reportedly faces a $270 million loss in loans to Three Arrows Capital. Collateral damage and the lending network in the crypto space came to light after Three Arrows Capital filed for bankruptcy in the US and began liquidation.
The good news is that Celsius continues to undo its complex positions. Over the weekend, she reportedly paid $258 million to Aave and Compound to release $950 million in collateral. If Celsius can unwind its positions and capture collateral, we could see it being able to return client funds when they want to exit. The problem is that the recovery of collateral can also mean the sale of crypto assets, pouring more into the market at a time when buyers are scarce.
Bitcoin could also experience a cap after Binance announced on Friday the possibility of trading this coin without commissions. Trading volume increased accordingly, which died down once the initial exuberance wore off.
Weekends can be volatile for cryptocurrencies as volume dwindles and any news can move the market extremely quickly. With all the crypto sell-offs today, we may see even more selling pressure in the coming weeks as large leveraged positions are unwound. But that is not what will drive up the price of cryptocurrencies in the long run.
I think it is worth taking a step back to think about what is being developed using cryptocurrencies and blockchain as a base. There are now thousands of developers building businesses backed by billions of dollars of capital, and we are just beginning to see the fruits of that investment. In the next few years, we will likely see the transition of many types of transactions to blockchain, with companies starting to create more use cases over time.
I am bullish on this ongoing build, but given the prevalence of cryptocurrency trading over the past year, it is not surprising to see a pullback. Traders who have lost money exit the market and leveraged positions are undone. It will take time, but in the long term, we have to keep in mind that there is a lot of value being created and it will be great for investors to buy and hold.