Bitcoin has fallen below the $23,000 mark for the first time since December 2020, igniting a domino effect of cryptocurrency sell-offs.
The global cryptocurrency market capitalisation fell to just under $1trn on Tuesday for the first time since January 2021.
According to data provided by Coinmarketcap, the global crypto market cap fell to $983.72bn, before rebounding to a current price of $1.02trn.
Bitcoin (BTC-USD) has fallen by 28.8% in the last week to stand at $22,365, a price it has not visited since December 2020.
Ethereum (ETH-USD), the second largest cryptocurrency by market cap, fell by 34% in the last seven days to now stand at $1,223.
The rate of inflation in the US has spiked to 8.6% this month, the highest ever in 40-years.
The recent plummet in crypto prices has been attributed to the large amounts of retail investors in the sector who cannot maintain holding positions through extreme bear market conditions.
Speaking to Yahoo Finance, Adrian Lowery, financial analyst at DIY investing platform and coaching service Bestinvest, said: “The steep falls in crypto values are aggravated by a further consideration, which is that it is a market, unlike equities, dominated by retail investors."
As inflation and growth fears have accumulated recently, investors have rapidly liquidated holdings, partly because they fear further price drops but also to shore up bank balances and safety-net savings.
“Long-term institutional investors in equities, while they have obviously been selling out of some markets, have not pulled the trigger to the same extent.”
All necessities of life are increasing in price and the cost of living is likely to rise due to commodity shortages of wheat, oil and corn, mostly caused by the war in Ukraine.
The US Federal Reserve has tightened its monetary policy with a hawkish plan to boost interest rates by three-quarters of a point this week.
Bond yields have signalled the possibility of more aggressive Fed rate hikes.
The yield on the 10-year Treasury increased to 3.37%, while the two-year yield, which closely tracks Fed intentions, rose to 3.34%.
The recent interest rate hikes have triggered a selloff in risk assets including cryptocurrencies and stocks.
The cryptocurrency market has been correlating with tech stocks and has followed the downturn in US markets.
Read more: Crypto live prices
The benchmark S&P 500 index has fallen for four straight days, losing 149.91 points, or 3.85%, to end Monday's trading on 3,750.95 points.
The Nasdaq Composite (.IXIC) lost 526.82 points, or 4.65%, to 10,813.20.
The Dow Jones Industrial Average (.DJI) fell 857.70 points, or 2.73%, to 30,535.09.
All signs confirm a bear market and fears of a global recession are increasing, which affects trader sentiment towards risk assets such as cryptocurrencies and stocks.
The sell-off of major blue-chip cryptocurrencies has led to crypto-lending company Celsius Network stopping withdrawals and transfers citing "extreme" market conditions.
Celsius Network (CEL-USD) plunged to a low of $0.15 before rebounding by 66% today to $0.32.
Amid the recent market meltdown, Celsius Network said it had frozen withdrawals, as well as transfers between accounts, "to stabilise liquidity and operations while we take steps to preserve and protect assets."
The company added in an online statement that they are "taking this action today to put Celsius in a better position to honour, over time, its withdrawal obligations".
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