Cryptocurrency lender Celsius Network LLC filed for bankruptcy protection Wednesday, a month after halting withdrawals in the wake of a collapse in digital currency prices that stretched the platform’s business model past the breaking point.
The chapter 11 filing in New York follows weeks of market speculation about Celsius, which built itself into one of the biggest cryptocurrency lenders on a pitch that it was less risky than a bank, and with better returns for its customers. But it overextended itself offering lofty yields to crypto depositors and making large loans backed by little collateral, leaving itself little cushion in the event of a market downturn.
U.S. stock futures fell, oil prices dropped and bond yields ticked lower after major indexes rallied to start the trading week, with recent volatility in markets showing few signs of abating.
Futures for the S&P 500 declined 1.4% Wednesday. Contracts for the tech-focused Nasdaq-100 contracted 1.6% and futures for the Dow Jones Industrial Average receded 1.2%. U.S. stocks rallied Tuesday off their worst week since March 2020, offering investors a reprieve from a recent stretch of whipsaw trading that had sent stocks and cryptocurrencies falling.
Stocks have seen sharp moves in recent weeks following aggressive interest-rate increases from the Federal Reserve, with more expected, as central banking officials seek to put a cap on inflation. Investors have scrambled to unload riskier assets amid growing fears that quick tightening of financial conditions will plunge the U.S. economy into a recession. The S&P 500 is on track for its worst first half of the year in decades, according to Deutsche Bank research analysts.
Recession fears weighed on shares of energy, autos and travel companies in premarket and European trading.
Occidental Petroleum
declined 4.1% premarket, while
Halliburton
shares fell 3.9%.
United Airlines Holdings
fell 3.3%.
The
Cboe
Volatility Index—Wall Street’s so-called fear gauge, also known as the VIX—rose 3.6% to 31.29.
Investors sought assets viewed as safer to hold Wednesday, such as the U.S. dollar and U.S. government debt. The WSJ Dollar Index, which measures the dollar against a basket of 16 currencies, added 0.2%.
In bond markets, the yield on the benchmark 10-year Treasury note ticked down to 3.228% from 3.304% Tuesday. Yields fall when prices rise.
“There is certainly an anxiousness in markets and that’s playing through in volatility,” said
Edward Park,
chief investment officer at U.K. investment firm Brooks Macdonald, adding that investors are likely awaiting fresh inflation data or a central bank meeting to assess their future trades.
Fed Chairman
Jerome Powell
is set to testify before Congress on both Wednesday and Thursday. Investors will be watching his words for clues about the future path of monetary policy.
In energy markets, Brent crude, the international benchmark for oil prices, dropped 4.4% to $109.63 a barrel. President Biden is planning to call for a temporary suspension of the federal gasoline tax, The Wall Street Journal reported. Energy prices remain near historically high levels as Russia’s invasion of Ukraine has caused Western nations to move rapidly away from Moscow’s supplies.
“This is a reminder for markets that governments are unlikely to sit back and take a higher oil prices,” Mr. Park said.
The dollar value of bitcoin, the world’s largest cryptocurrency by market value, edged down 2.1% from its 5 p.m. ET level Tuesday to trade at $20,393.06, according to CoinDesk. Cryptocurrencies have fallen recently amid broad investor desire to get out of speculative assets and concerns about the future of some crypto companies.
U.S. stocks rallied Tuesday off their worst week since March 2020.
Photo:
Seth Wenig/Associated Press
Overseas, the pan-continental Stoxx Europe 600 declined 1.6%, with losses led by the basic resources, oil-and-gas and autos sectors.
In Asia, major indexes closed with losses. South Korea’s Kospi declined 2.7%, China’s Shanghai Composite fell 1.2% and Japan’s Nikkei 225 edged down 0.4%.
Write to Caitlin Ostroff at caitlin.ostroff@wsj.com
U.S. stocks rallied Tuesday off their worst week since March 2020, offering investors a reprieve from a recent stretch of whipsaw trading that had sent stocks and cryptocurrencies falling.
The S&P 500 gained 89.95 points, or 2.4%, to 3764.79. The Dow Jones Industrial Average added 641.47, or 2.1%, to 30530.25. The Nasdaq Composite Index jumped 270.95 points, or 2.5%, to 11069.30. The U.S. stock market was closed Monday for the Juneteenth federal holiday.
Bitcoin rose alongside other cryptocurrencies, continuing to claw back some losses after a bruising weekend. Bitcoin rose to $20,836.15, up 1.9% from its 5 p.m. ET value Monday, and about 18% higher from a recent low of $17,601.58 reached Saturday, according to CoinDesk data.
Investors’ appetite for riskier assets on Tuesday follows a tumultuous week in the markets, sparked by the Federal Reserve’s approval of a 0.75-percentage-point interest-rate increase, the largest since 1994. Investors scrambled to unload riskier assets amid growing fears that central bankers will plunge the U.S. economy into a recession. The benchmark S&P 500 finished the week 5.8% lower, its largest one-week decline in more than two years.
Meanwhile, investors await further commentary from Federal Reserve Chairman
Jerome Powell
when he testifies before Congress on both Wednesday and Thursday.
“Investors will be looking for any inkling as to whether Chair Powell’s commitment to another 0.75 percentage point rate hike is serious,” said
Michael Farr,
president of Farr, Miller & Washington.
Both investors and policy makers are eager to see the June print for consumer inflation expectations, due Friday. At his news conference last week, Mr. Powell said the preliminary reading of 5.4% was “eye catching.”
“Markets are going to watch the final read for consumer inflation expectations in the University of Michigan survey. They want to see how aggressive the Fed will have to be,” said
Rob Haworth,
senior investment strategist at U.S. Bank Wealth Management. “If expectations stop accelerating, markets may read that as Fed policy starting to work.”
Investors and analysts say they expect more pain ahead in the markets, though some are still willing to wade in and buy stocks at a discount after a selloff that has dragged the S&P 500 down 21% this year. Many pointed to Tuesday’s recovery as a bounce off last week’s drawdown.
“This still feels like a bit of a dead-cat bounce,” said
Viraj Patel,
global macro strategist at Vanda Research, referring to a term used to describe a brief market rally. He said investors’ willingness last week to dump shares of winning sectors this year, including energy and utilities stocks, might be a signal that this year’s drawdown has entered its latter stages. Still, he said, he believes the selloff “still has legs to go.”
Tuesday’s bullish mood came alongside a selloff in U.S. government bonds, sending the yield on the 10-year U.S. Treasury note higher. The yield on the benchmark note traded at 3.304%, up from 3.238% Friday. Yields and bond prices move in opposite directions.
Government leaders and officials in recent days have tried to assuage an increasingly jittery nation that an economic slowdown isn’t guaranteed. President
Biden
on Monday said he spoke with
Lawrence Summers,
a former Treasury secretary, and reiterated that he doesn’t see a recession as inevitable. Federal Reserve Bank of St. Louis President
James Bullard
also said the economy appears on track for more expansion this year.
Still, many market watchers are bracing for an economic downturn. In a note Monday, a team of
Goldman Sachs
economists increased their outlook for a U.S. recession, citing concerns that the Fed will feel compelled to respond forcefully to inflation data, even if economic activity slows. The team now sees a 30% probability of entering a recession over the next year, versus 15% previously, and a 25% probability of entering a recession in the second year if one is avoided in the first.
U.S. stock market gains were broad-based, with all 11 of the S&P 500’s sectors rising on Tuesday.
Energy stocks led their peers.
Diamondback Energy
rose $9.99, or 8.2%, to $132.28.
Exxon Mobil
climbed $5.36, or 6.2%, to $91.48.
Brent crude, the international benchmark, rose for a second day, climbing 0.5% to $114.65 a barrel. Last week, oil prices fell amid concerns that a possible recession would weigh on energy demand.
Growth stocks, which have been beaten down this year, notched gains. Data and software company Palantir Technologies and chip maker Nvidia both gained more than 4%.
Seema Shah,
chief strategist at Principal Global Investors, said that for now, investors may see value in companies whose shares have been badly beaten down this year. However, she said, she expects the market to fall further once investors begin to see consistent declines in earnings growth.
“I think what you could see is a [modest] rally through the summer…and as you get into the autumn months and the next earnings season, I think a lot of the economic data is going to start to turn and earnings growth is going to start to turn,” she said. Still, she noted, even now, “sentiment is deteriorating very rapidly.”
Overseas, the pan-continental Stoxx Europe 600 rose 0.4%. In Asia, trading was mixed. Hong Kong’s Hang Seng rose 1.9% and Japan’s Nikkei 225 gained 1.8%, while China’s Shanghai Composite lost 0.3%.
Write to Caitlin McCabe at caitlin.mccabe@wsj.com and Eric Wallerstein eric.wallerstein@wsj.com
Technical strategist Tom DeMark in March said bitcoin could fall as low as $18,418 — back when the cryptocurrency was trading as high as $48,000.
A volatile weekend had bitcoin
BTCUSD,
-1.21%
briefly trading below $18,000, as it traded around $20,000 on Monday, down some 70% from its Nov. 10 peak of $68,924. Bitcoin has collapsed in value as the Federal Reserve began lifting interest rates.
DeMark’s indicators place great importance on the number of days, which don’t have to be consecutive, in which there was a close lower than the close two days ago. Subject to various conditions, when the countdown reaches 13, a buy signal is triggered. (The opposite applies to sell signals.) Put more simply, his analysis looks for both overbought and oversold signals.
Tom DeMark says his indicators have spotted bitcoin tops and bottoms.
In an analysis provided exclusively to MarketWatch, DeMark says lasting damage has been done because bitcoin has fallen more than 50% from its peak. In prior declines, bitcoin held the 50% retracement levels.
See earlier story: The technician who called the 2020 market bottom says a ‘shocking rally’ is in store
“Typically, structural long term damage is done to an uptrend when a retracement exceeds 56%,” says DeMark, the founder and CEO of DeMark Analytics and a consultant to hedge-fund manager Steven A. Cohen. “Such breakdowns bespeak a high probability recovery to the all-time bitcoin highs will require many years, if not decades, to accomplish.”
As a comparison, it took 25 years for stocks to exceed the prior September 1929 high.
But like the stock market after 1929, there could be a rally. “This does not negate the prospect of up to 50-56% recovery over upcoming months which implies bitcoin rally back to $40,000-$45,000.”
Some good news may be in store for bitcoin investors.
Depending on which timing model is applied, bitcoin recorded buy countdown 12 or 13 on Saturday morning. “Since this was accomplished over a weekend and a 7 day chart there remains modest risk of two lower lows and closes than Saturday levels next week. Regardless once there is a close above the close 4 days prior followed the next trading day with a higher high and close, the trend should reverse upside,” he says.
The price of bitcoin lurched below $20,000, and below a level widely monitored by cryptocurrency enthusiasts, as a brutal selloff in crypto showed no signs of abating.
Bitcoin fell as low as $18,739.50 and stayed below $20,000 on Saturday, according to CoinDesk, losing 72% of its value from its high in November. Concerns about the Federal Reserve’s actions to tame higher-than-expected inflation have pushed both stocks and cryptocurrencies into a bear market. Big names in the industry, including
Coinbase Global Inc.,
the biggest cryptocurrency exchange in the U.S., have recently announced job cuts.
There is no specific significance to the $20,000 level, but the price slid below $19,783, a previous high water mark hit in 2017, according to Coinbase. Bitcoin bulls have long held that the cryptocurrency had in recent years entered a new stage of development and acceptance, and that it wouldn’t fall below that 2017 level.
“It will be a lot of pain for a lot of investors,” said Yuya Hasegawa, a market analyst at Japanese crypto exchange Bitbank Inc. People will lose confidence in the crypto market as a whole, but seasoned crypto investors and those who believe in its long-term prospects will see an opportunity to buy at discounted prices, he said.
Ether, another major cryptocurrency, fell below $1,000, briefly reaching $975.35 on Saturday, according to CoinDesk, its lowest level since January 2021.
Bitcoin’s slide from its record high of $67,802 in November has contributed to a roughly $2 trillion wipeout in the broader market. Crypto’s total market capitalization, which peaked in November at nearly $3 trillion, stood at around $840 billion Saturday—its lowest since January 2021, according to data provider CoinMarketCap.
Bitcoin traded around the $30,000 mark for most of May before dropping sharply again in June after a fresh inflation shock and worries about rising U.S. interest rates. Investors have been unloading assets seen as risky, such as cryptocurrencies and technology stocks.
Individual investors have received margin calls, with about $260 million of collateral pledged by about 80,000 retail traders liquidated over the past 24 hours, according to data provider CoinGlass. That compares with $1 billion earlier this week.
A growing number of previously highflying crypto firms have been feeling the pain in what has been dubbed a “crypto winter.” Cryptocurrency lender Babel Finance told customers Friday that it was suspending redemptions and withdrawals from all products, citing “unusual liquidity pressures.” One of the largest crypto lenders, Celsius Network LLC, hasn’t let users withdraw funds for roughly a week, citing extreme market conditions.
Cryptocurrency-focused hedge fund Three Arrows Capital Ltd. has hired legal and financial advisers to help work out a solution for its investors and lenders after suffering heavy losses from a broad market selloff in digital assets, the firm’s founders told The Wall Street Journal.
The surge in cryptocurrency valuations over the last two years was aided by big-name investments from companies such as
Tesla Inc.
and a period of lower interest rates during the pandemic that encouraged individuals stuck at home to buy riskier assets in the hopes of greater returns.
Interest-rate increases now being enacted by the Fed come at a time when blowups in some crypto projects have rippled across the ecosystem. So-called stablecoin TerraUSD broke from its $1 peg last month following intense selling pressure, leaving it and its original sister cryptocurrency Luna now nearly worthless. As its developers sought to defend TerraUSD’s peg, they sold bitcoin reserves, weighing on the price of it and other assets.
Crypto investors more recently have become concerned about a derivative of the cryptocurrency ether that is locked up until the Ethereum network transitions to a less energy-intensive model. So-called Lido-staked ether has been trading at a discount to ether itself recently.
“Crypto has enough problems. It doesn’t need the macro,” said Noelle Acheson, head of market insights at crypto lender Genesis Global Trading, in reference to rising interest rates and inflation concerns.
Write to Elaine Yu at elaine.yu@wsj.com and Caitlin Ostroff at caitlin.ostroff@wsj.com
The price of bitcoin continued to fall Tuesday as the crypto industry struggles with fallout from the extended selloff.
Bitcoin traded as low as $20,834 earlier on Tuesday, according to CoinDesk. The original cryptocurrency hasn’t traded under $20,000 since December 2020.
For the day, bitcoin fell 5.4% to $21,991.89, its lowest close since Dec. 16, 2020, according to Dow Jones Market Data. It is down about 68% from its all-time high in November last year at $67,802.
Coinbase Global Inc.,
one of the largest and most valuable crypto exchanges, said Tuesday that it was laying off 18% of its staff, a move that comes roughly a month after the company imposed a hiring freeze. Two other prominent crypto companies, Crypto.com and BlockFi, have also announced layoffs.
Coinbase shares closed down 0.8% at $51.58. The stock has fallen about 80% year to date.
WSJ’s Dion Rabouin explains why Wall Street is now betting big on crypto and what that means for the new asset class and its future. Photo composite: Elizabeth Smelov
Cryptocurrencies have been sinking along with other higher-risk assets as the Federal Reserve steadily reverses the aggressive monetary policies it adopted earlier in the coronavirus pandemic. Lately, its efforts to raise interest rates to combat surging inflation have further dented investors’ risk appetite.
The market value of the entire crypto sector has fallen to less than $1 trillion from about $3 trillion in November, according to CoinMarketCap. Those falls reflect a significant drop in trading activity and momentum, and until that turns around, industry players like Coinbase are likely to remain under pressure, said KBW Managing Director
Kyle Voigt.
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Coinbase Chief Executive
Brian Armstrong
said the company had grown too quickly, expanding from about 1,250 employees at the start of last year to around 5,000 currently.
“We saw the opportunities but we needed to massively scale our team to be positioned to compete in a broad array of bets,” he wrote in a note to staff. “While we tried our best to get this just right, in this case it is now clear to me that we over-hired.”
The price of ether, the in-house currency of the Ethereum network, fell 4.5% to $1,187.30, its lowest close since Jan. 21, 2021. Over the weekend, the price fell below $1,360, the early 2019 high from the previous cycle.
Other cryptocurrencies were mixed. Cardano fell 1.9%, but Solana was up 1.3% and Stellar was up 0.5%.
U.S. stock-index futures sank Sunday after Wall Street’s worst week since January.
Dow Jones Industrial Average futures
YM00,
-1.25%
fell about 300 points, or 1%, as of midnight Eastern, while S&P 500 futures
ES00,
-1.65%
and Nasdaq-100 futures
NQ00,
-2.17%
posted even steeper declines.
Prices of bitcoin and other cryptocurrencies also slid over the weekend, with bitcoin
BTCUSD,
-7.71%
falling below the $26,000 level to its lowest point in 18 months, and more than 60% off its all-time high reached last November. Crude prices
CL.1,
-1.31%
dipped Sunday as well.
Stocks finished sharply lower Friday. The Dow
DJIA,
-2.73%
dropped 880 points, or 2.7%, to close at 31,392.79; the S&P 500
SPX,
-2.91%
slid 116.96 points, or 2.9%, to finish at 3,900.86; and the Nasdaq Composite
COMP,
-3.52%
slumped 414.20 points, or 3.5%, to end at 11,340.02.
For the week, the Dow fell 4.6%, the S&P 500 dove 5.1% and the Nasdaq sank 5.6%. It was the biggest weekly loss since January for all three major benchmarks, according to Dow Jones Market Data.
Read: Stocks sink again as hot inflation reading triggers market shock waves: What investors need to know
Markets fell following renewed inflation worries, as a new report showed hotter-than-expected readings. The consumer-price index on Friday showed U.S. inflation increased 1% in May, well above the 0.7% monthly rise forecast by economists surveyed by the Wall Street Journal. The year-over-year rate rose 8.6%, topping the 40-year high of 8.5% seen in March.
Federal Reserve policy-makers are set to meet this week, and are expected to raise interest rates by 50 basis points, though some economists think that after Friday’s CPI report, there may be support for a more aggressive 75-basis-point hike.
Also see: ‘Doves don’t exist on the FOMC right now’: Economists expect hawkish Fed meeting this week
“U.S. CPI for May was a nightmare for risk markets,” Stephen Innes, managing partner at SPI Asset Management, wrote in a note Sunday. “The market is now thinking much more about the Fed driving rates sharply higher to get on top of inflation and then having to cut back as growth drops.
That will leave traders and investors “deliberating how much further tightening central banks’ will be able to deliver and, therefore, how much higher yields can go from here. And we all know nothing ever good happens when interest rate volatility spikes in capital markets,” he said.
Crypto lending platform Celsius Networks LLC said Sunday it is pausing all withdrawals, swaps and transfers between accounts, “due to extreme market conditions.”
“We are taking this action today to put Celsius in a better position to honor, over time, its withdrawal obligations,” the New Jersey-based company said in a statement.
Celsius is one of the largest crypto lending companies in the world, at one point claiming more than $20 billion in assets. But it has also run afoul of regulators, and some users have recently blamed Celsius for steep financial losses for encouraging them to hold its CEL digital tokens as collateral for loans — CEL plunged 48% late Sunday and has lost more than 75% of its value over the past month, and 97% over the past year, according to CoinGecko data.
From May: Celsius faces a revolt as a high-yield crypto plummets
The wider cryptocurrency space has been slammed this year, with the total crypto market down more than 40% over the past two months. Bitcoin
BTCUSD,
-5.39%,
for example, slid to an 18-month low Sunday and has lost 45% of its value year to date; it’s off more than 60% since its all-time high-water mark last November.
“We understand that this news is difficult,” Celsius said Sunday. “We are working with a singular focus: to protect and preserve assets to meet our obligations to customers.”
Celsius said its operations were continuing, but that there was “a lot of work ahead as we consider various options.”
Microsoft cited the impact of foreign-exchange rates as the U.S. dollar has strengthened.
Photo:
Mike Segar/REUTERS
Microsoft Corp.
MSFT -2.25%
cut sales and earnings guidance for the current quarter, citing the impact of foreign exchange rates as the stronger U.S. dollar takes a toll.
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The software giant said in a securities filing Thursday that it now expects fiscal fourth-quarter sales of between $51.94 billion and $52.74 billion, down from its prior guidance of $52.4 billion to $53.2 billion. The quarter ends June 30.
Earnings are expected to be between $2.24 a share and $2.32 a share, down from prior guidance of $2.28 a share to $2.35 a share.
Microsoft shares fell 2.5% in early trading to $265.60. They are down nearly 21% year to date.
Economic weakness in other parts of the world has helped propel the U.S. dollar to multi-decade highs against its trading partners, which comes as U.S. inflation is at or near its highest level in nearly 40 years. The U.S. Dollar Index, which tracks the currency against a basket of others, is up more than 6% so far this year and hit its highest level since 2002 last month. The greenback’s climb has sent the euro, British pound and Japanese yen tumbling.
A strong dollar allows Americans to buy goods from other countries at lower prices. But it can also hurt U.S. manufacturers by making products more expensive for foreigners, and it means U.S. businesses receive fewer dollars for their exports.
Microsoft said in its earnings report earlier this month that a stronger dollar reduced the software company’s revenue, even though it notched higher profits last quarter.
Microsoft is the latest multinational giant to warn of the stronger dollar’s impact on financials.
Salesforce Inc.
earlier this week cited the stronger dollar in lowering its sales outlook for the year. The business-software company doubled the impact that it expects this year from the stronger dollar to $600 million from its $300 million forecast in March.
“I think the dollar might have even had a stronger quarter than we did,” Salesforce Co-Chief Executive
The largest cryptocurrencies showed signs of recovery following a roughly weeklong selloff, while beleaguered stablecoin TerraUSD continued to tumble.
Bitcoin was up about 4.3% Friday from its 5 p.m. ET level Thursday, trading around $29,800.33, after falling below $26,000 Thursday. Ether, the second-largest cryptocurrency by market value, rose 6.2%.
TerraUSD fell to 10 cents early Friday, having declined 82% over the previous 24 hours, according to CoinDesk. It edged up to about 14 cents late afternoon. The formerly third-largest stablecoin—a type of cryptocurrency known for its stability—has come off its $1 peg following a wave of selling that started at the weekend. Its decline has taken its sister token, Luna, down with it and has weighed on bitcoin. Luna fell to less than a half-cent Friday, down from more than $60 Monday.
The blockchain underlying TerraUSD and Luna had been twice halted as its network validators seek to stabilize the digital assets. Binance, the largest cryptocurrency exchange by volume, suspended trading of both TerraUSD and Luna late Thursday.
On Friday, both the blockchain and Binance’s trading of TerraUSD and Luna resumed, according to the companies.
Stablecoins have surged in popularity the past two years and now act as the grease that moves the gears of the cryptocurrency ecosystem. Traders prefer to buy coins such as bitcoin, ether and dogecoin using digital assets that are pegged to the dollar because when they buy or sell, the price is only moving on one side. They also allow for fast trading without the settlement times associated with government-issued currencies, which can take days.
While the most popular stablecoins maintain their levels with assets that include dollar-denominated debt and cash, TerraUSD is an algorithmic stablecoin, which relies on financial engineering to maintain its link to the dollar.
In the past, TerraUSD maintained its $1 price by relying on traders who acted as its backstop. When it fell below the peg, traders would burn the stablecoin—removing it from circulation—by exchanging TerraUSD for $1 worth of new units of Luna. That action reduced the supply of TerraUSD and raised its price.
Conversely, when TerraUSD’s value rose above $1, traders could burn Luna and create new TerraUSD, thus increasing the supply of the stablecoin and lowering its price back toward $1.
That financial engineering to maintain its peg began to falter over the weekend with a series of large withdrawals of TerraUSD from Anchor Protocol, a sort of decentralized bank for crypto investors.
Meanwhile, TerraUSD was sold for stablecoins backed by traditional assets through various liquidity pools that contribute to the stability of the peg, as well as through cryptocurrency exchanges. The sudden outflow spooked some traders who began selling TerraUSD and Luna.
The prices of many cryptocurrencies have fallen sharply over the past week.
Photo:
Erhan Demirtas/Bloomberg News
A reserve fund of about $3 billion in bitcoin and other cryptocurrency resources, owned by the Luna Foundation Guard, has been largely depleted amid an emergency effort to salvage TerraUSD, according to the fund’s data dashboard. The fund’s selling contributed to a sharp drop in bitcoin’s price earlier this week, analysts and traders said.
Write to Caitlin Ostroff at caitlin.ostroff@wsj.com
