As “dominoes” fall one after another, where will the next “explosion point” of cryptocurrency be?

Since the beginning of this year, the tragic situation of the cryptocurrency market has been so tragic that it can be said that "those who hear it are sad and those who listen to it will cry". The market value has dropped to around US$900 billion, evaporating more than US$2 trillion from the beginning of the year. Among them, Bitcoin (BitfinexUSD), which accounts for the largest proportion, has fallen by 56.13%, Ethereum has fallen by 98.31%, and Dogecoin has also fallen by 59.30%.

(The list of gains and losses of some cryptocurrencies and related stocks comes from Investing.com)

The plunge in the cryptocurrency market has triggered a series of negative reactions involving all aspects of the industry, and has even been likened by some media to a recurrence of the "Lehman crisis" during the 2008 financial crisis.

In a series of chain reactions, the first to be affected are naturally those companies that hold more cryptocurrencies.

For example, MicroStrategy Inc (NASDAQ:MSTR), the listed company with the largest Bitcoin holdings in the world, was expected by the market to report an impairment loss of up to $3.4 billion in the second quarter. Data showed that the company's Bitcoin holdings at the end of the first quarter were worth about $5.9 billion, and based on the closing price of $18,900 on the last trading day of the second quarter, the value of the company's Bitcoin holdings may have shrunk by about 58% to $2.45 billion. The company's stock price has also fallen by nearly 70% this year.

Another well-known company on Wall Street that invests in cryptocurrencies is Tesla (NASDAQ: TSLA). As of the first quarter, Tesla's Bitcoin holdings were worth about $1.2 billion. After the corresponding decline (58%), the company's Bitcoin investment impairment may be around $440 million. This may not be a big deal for Musk, the richest man in the world, but for Tesla, it is equivalent to about 9% of the company's full-year profit last year. The stock is still down 35.48% this year.

The latest news this week also shows that Meitu Inc. (HK:1357) is also currently mired in Bitcoin losses. The company's announcement shows that it expects to record a net loss of US$275-350 million in the first half of this year, mainly due to the impairment of the purchased cryptocurrencies. In March and April last year, the company bought a total of 31,000 Ethereum and 940.89 Bitcoins, spending US$50.5 million and US$49.5 million respectively, with a cost price of US$1,629 and US$52,610 respectively. The stock has fallen 40% this year.

In the past decade, Bitcoin has indeed experienced two major crises, one of which was in 2018, when Bitcoin plummeted by more than 80%, and then rebounded to a high of $69,000 in November 2021. Therefore, loyal believers in cryptocurrencies firmly believe that it will only be a matter of time before Bitcoin rebounds.

According to a survey conducted by Morning Consult, a well-known American consulting firm, some firm believers among the 4,400 respondents said they would go all out to prepare for hibernation and welcome the winter of cryptocurrency. The survey showed that 28% of Bitcoin holders said they had purchased Bitcoin in the past month, while 71% of respondents said they planned to buy Bitcoin.

However, it is worth noting that the survey also shows that although investors' confidence in the market has not been extinguished, their trust in cryptocurrency trading platforms has been greatly reduced. Morning Consult said that this is mainly because these platforms are too young and have not established long-term relationships with investors, and do not fully trust each other.

Investors' distrust is understandable.

Previously, the collapse of the cryptocurrency Luna triggered a series of negative reactions. The algorithmic stablecoin TerraUST also collapsed against this background, and tens of billions of dollars in value evaporated, and the cryptocurrency market fell more and more severely.

Subsequently, Celsius Network, a cryptocurrency loan giant with 1.7 million users, stopped all customer withdrawals, swaps and transfers. According to reports, the institution withdrew liquidity twice at the end of last month and has hired a professional agency to prepare for potential bankruptcy.

Soon after, Three Arrows Capital, a hedge fund focused on the cryptocurrency market, also went bankrupt. This is one of the largest hedge funds in the market, with funds under management once reaching $10 billion, and its investment portfolio includes tokens such as Avalanche, Solana, Polkadot, and Terra. The liquidation of the "top streamers" who play an important role in the industry has exacerbated the crisis in this market.

Since Three Arrows Capital had borrowed $675 million from Canadian cryptocurrency broker Voyager Digital in the form of 15,250 bitcoins and $350 million in USD Coin, Voyager Digital Canada Ltd (TSX:VOYG) also announced last Friday that it would suspend trading, deposits, withdrawals and loyalty rewards to continue exploring strategic options with relevant parties. As a result, the company's stock price fell as much as 43% in a single day in the U.S. over-the-counter market, and the stock has fallen by more than 90% in Canada, its main listing place, so far this year.

Coincidentally, Voyager's competitor, cryptocurrency lending platform BlockFi, has also recently encountered the threat of liquidity depletion and has planned to sell itself to cryptocurrency exchange FTX for $240 million. The latest news is that on Monday, another cryptocurrency lending company Vauld also announced that it would suspend withdrawals and explore potential restructuring plans.

The collapse of cryptocurrencies is like a domino falling, and the series of negative reactions may not be over yet. What the market is paying close attention to now is where the next "explosion point" of this crisis will be?

Some analysts pointed out that the stablecoin Tether will be the key next, because over the past month, short sellers have increased their bets on Tether, and the market value of the coin fell by $600 million last week. Overall, the market value has been wiped out by $17 billion compared to before the TerraUST explosion.

Why is Tether so important? The so-called "stablecoin" is a cryptocurrency whose market value is linked to a "stable" reserve asset such as the US dollar or gold, and serves as a pricing anchor and a medium of exchange in the cryptocurrency market. Tether Limited is the largest operator in the stablecoin field with a value of $180 billion. It plays a key role in facilitating transactions in the entire cryptocurrency market and also provides a connection with the mainstream financial system, which is equivalent to the financial infrastructure of the cryptocurrency circle.

Tether can be said to be the "load-bearing wall" of the entire cryptocurrency market, so its future trend will be crucial.