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Bitcoin’s (BTC) and Ether’s (ETH) agonizing 60% and 66% respective drops in price are drawing a lot of criticism from crypto critics and perhaps this is deserved, but there are also plenty of stocks with similar, if not worse, performances. 

The sharp volatility witnessed in crypto prices is partially driven by major centralized yield and lending platforms becoming insolvent, Three Arrows Capital’s bankruptcy and a handful of exchanges and mining pools facing liquidity issues.

For cryptocurrencies, 2022 has definitely not been a good year, and even Tesla sold 75% of its Bitcoin holdings in Q2 at a loss. The quasi-trillion dollar company still holds a $218 million position, but the news certainly did not help investors’ perception of Bitcoin’s corporate adoption.

Cryptocurrencies are not the only assets impacted by central banks withdrawing stimulus measures and increasing interest rates. A handful of multi-billion dollar companies around the globe have also suffered, with losses that surpass 85% in 2022 alone.

Cash hungry companies saw steep declines in their stock price

Unlike cryptocurrencies, companies, especially those listed on stock markets, rely on financing — whether the cash is used for mergers and acquisitions or day-to-day operations. That is why interest rates set by central banks dramatically impact debt-intensive sectors such as energy, auto sales and technology.

Cryptocurrencies have been in a bear trend since mid-August after they failed to break above the $1.2 trillion market capitalization resistance. Even with the current bear trend and a brutal 25% correction, it has not been enough to break the three-month-long ascending trend.

The crypto markets' aggregate capitalization declined 7.2% to $920 billion in the seven days leading to Sept. 21. Investors wanted to play it safe ahead of the Federal Open Markets Committee meeting, which decided to increase the interest rate by 0.75%.

By increasing the cost of borrowing cash, the monetary authority aims to curb inflationary pressure while increasing the burden on consumer finance and corporate debt. This explains why investors moved away from risk assets, including stock markets, foreign currencies, commodities and cryptocurrencies. For instance, WTI oil prices ceded 6.8% from Sept. 14, and the MSCI China stock market index dropped 5.1%.

Ether (ETH) also saw a 17.3% retrace during the seven-day period and many altcoins performed even worse. The Ethereum network Merge and its subsequent impact on other GPU-mineable coins caused some skewed results among the worst weekly performers.

Chiliz (CHZ) rallied 21.5% following two successful fan token launches from MIBR esports team and the VASCO soccer team from Brazil.

A Bitcoin (BTC) on-chain indicator, which tracks the amount of coin supply held by long-term holders (LTHs) in losses, is signaling that a market bottom could be close.

Eerily accurate Bitcoin bottom pundit

As of Sept. 22, approximately 30% of Bitcoin's LTHs were facing losses due to BTC's decline from $69,000 in November 2021 to around $19,000 now. That is about 3%–5% below the level that previously coincided with Bitcoin's market bottoms.

For instance, in March 2020, Bitcoin price declined below $4,000 amid the COVID-19-led market crash, which happened when the amount of BTC supply held by LTH in loss climbed toward 35%, as shown below.

Similarly, Bitcoin's December 2018 bottom of around $3,200 concurred alongside the LTH loss metric rising above 32%. In both cases, BTC/USD followed up by entering a long bullish cycle.

Hence, the number of LTHs in loss during a typical bear market tends to peak in the 30%–40% range. In other words, Bitcoin's price still has room to drop — likely into the $10,000–$14,000 range —for "LTHs in loss" to reach the historic bottom zone. 

Ethereum's Merge on Sep. 15 turned out to be a sell-the-news event, which looks set to continue. 

Notably, Ether (ETH) dropped considerably against the U.S. dollar and Bitcoin (BTC) after the Merge. As of Sep. 22, ETH/USD and ETH/BTC trading pairs were down by more than 20% and 17%, respectively, since Ethereum's switch to Proof-of-Stake (PoS.

What's eating Ether bulls?

Multiple catalysts contributed to Ether's declines in the said period. First, ETH's price fall against the dollar appeared in sync with similar declines elsewhere in the crypto market, driven by Federal Reserve's 75 basis points (bps) rate hike.

Second, Ethereum faced a lot of flak for becoming too centralized post-Merge.

Only five entities produced 60% of the blocks  so far. The biggest share belongs to Lido DAO, an Ethereum staking service, that has 4.19 million ETH deposited, or over 30% of the total amount staked into Ethereum's official PoS smart contract.

Bitcoin (BTC) retreated and reversed its intraday gains after the Federal Reserve announced its third consecutive 75 basis point (bps) interest rate rise on Sept. 21.

Traders sold the news

BTC's price dropped circa 6.5% from its intraday high of $19,950, hitting $18,660 minutes after the Federal Open Market Committee's statement. Its decline mirrored a similar sudden correction in the U.S. stock market, with the benchmark S&P 500 dropping 0.5% minutes after the Fed update.

On the other hand, the 10-year U.S. Treasury note yield surged to 3.6% after the Fed's announcement versus 3.56% five minutes before it. Similarly, the yield on the 2-year Treasury note climbed from 3.98% to 4% in the same timeframe.

The U.S. dollar index (DXY), which measures the greenback's strength against a basket of top foreign currencies, surged to 111.57 for the first time in 20 years.

The Fed also published an updated "dot plot," which complied with its officials' individual interest rate projections by the end of 2025. These forecasts signaled additional rate hikes in the future, with the 2022 target sitting at 4.4% and 2023 targeting 4.6%.

Most crypto investors probably never heard of Wintermute Trading before the Sept. 20 $160 million hack, but that does not reduce their significance within the cryptocurrency ecosystem. The London-based algorithmic trading and crypto lending firm also provides liquidity to some of the largest exchanges and blockchain projects.

As a crypto-native trading firm, meaning digital assets have been its core since its inception in July 2017, Wintermute’s expertise in the sector is attested by $25 million in funding from global venture capital investors like Fidelity Investments, Pantera Capital and Blockchain.com Ventures.

Lending and venture capital firms have limited impact on day-to-day operations

An important distinction sets a market maker apart from bankrupt crypto venture capital firms like 3 Arrows Capital or insolvent lending and yield platforms like Voyager Digital and Celsius Network. Wintermute’s $160 million hack could have a much more profound impact on the crypto industry, considering how essential liquidity is.

The very nature of these businesses is vastly different. For example, a venture capitalist typically invests in pre-seed or seed capital by funding the projects ahead of their launch. There is a need for early-stage funding for tokens, nonfungible token (NFT) projects, decentralized applications (DApps) and infrastructure, but the money will eventually come up when a good team, idea and community are assembled.

Furthermore, the failure of a certain venture capitalist, whether it is or is not relevant to the industry, does not damage its competitors' reputation. In fact, the opposite sentiment emerges because it proves that picking the right projects pays off, if the firm has been correctly managing its risk exposure. The same can be said for the yield and lending platforms, which basically compete for client deposits and scramble to offer the best returns.