Are cryptocurrencies heading for a “Lehman Brothers moment”?

According to a report by the Los Angeles Times website on May 13, the cryptocurrency market is experiencing its worst sell-off since the market rebounded in 2020.

Even some stable cryptocurrencies have plunged . Market experts say two main factors have driven the cryptocurrency market’s recent plunge: the Federal Reserve’s measures to combat high inflation and stabilize markets, and the implosion of the “earth” dollar stablecoin.

Are cryptocurrencies heading for a "Lehman Brothers moment"?

To explain the first factor, let’s start with some macroeconomics. In early 2020, the Federal Reserve cut interest rates in response to a recession triggered by the coronavirus pandemic.

As a result, inflation rose to its highest level in 40 years. Another consequence: Abundant liquidity has pushed up prices in most asset classes, including traditional equities and cryptocurrencies, as traders put their money into investments with higher expected returns.

Higher prices mean economic pain for people, and it poses a threat to broader economic growth.

High inflation and, in turn, rate hikes can make investors nervous because it stunts corporate growth and affects corporate earnings, thus spurring selling.

What really grabs the attention of cryptocurrency watchers right now is the impact of Earthcoin on its sister cryptocurrency, Mooncoin.

These are two cryptocurrencies created by the “Earth” network, a blockchain project developed in South Korea.

As the price of “Earth” coins plummeted, those who held a large number of “Moon” coins cashed out, resulting in a sharp increase in the supply of “Moon” coins, and the price also plummeted. The “moon” coin fell 99% on Thursday.

According to data from Bloomberg Intelligence, the massive devaluation of the Moon coin looks like the worst day ever for a financial product, prompting cryptocurrency exchanges to remove it from trading lists, leaving trades in the dark Pause because there is no liquidity in the market.

Like the stock market, the cryptocurrency market has been in decline for several months. It peaked in November and all asset markets corrected as the Fed signaled a liquidity crunch.

Market experts point out that the correlation between traditional and cryptocurrency markets may be at an all-time high: if one market falls, the other is likely to fall too, and vice versa.

Experts are watching for a stronger correlation between cryptocurrencies and tech stocks. Tech stocks have been among the hardest hit in the recent market rout.

So is cryptocurrencies headed for a Lehman Brothers moment? Lehman Brothers, a large investment bank that collapsed in 2008, played a role in the outbreak of the financial crisis.

Edward Moya, senior market analyst at Forex trading platform Anda, said: “Not yet. Never say never, especially in the cryptocurrency space. While there are potential catalysts, there does not appear to be a systemic risk.

Posted by:CoinYuppie,Reprinted with attribution to:
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