Are cryptocurrencies headed for a "Lehman Brothers moment"?

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

Even some stable cryptocurrencies have plummeted . Market experts say there are two main factors driving the recent plunge in the cryptocurrency market: the Federal Reserve's measures to combat high inflation and stabilize the market, and the implosion of "Earth" dollar stablecoins.

To explain the first factor, let's start with some macroeconomics. In early 2020, the Federal Reserve cut interest rates in response to the economic recession triggered by the new crown 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 stocks and cryptocurrencies, as traders move money into investments that expect higher returns.

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

High inflation and, in turn, higher interest rates can make investors nervous because it can hinder corporate growth and affect corporate earnings, thus spurring selling.

What’s really grabbing the attention of cryptocurrency watchers right now is Earth’s impact on its sister cryptocurrency, Moon.

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

As the price of "Earth" coins plummeted, people who held a large number of "Moon" coins cashed out, causing the supply of "Moon" coins to surge, and the price also plummeted. The "Moon" coin fell 99% on Thursday.

According to data from Bloomberg Intelligence research company, the sharp decline of the "moon" coin looks like the worst day ever for a financial product, and it prompted cryptocurrency exchanges to remove it from the trading list, and the trading fell into a turmoil. Pause because there is no liquidity in the market.

Like the stock market, the cryptocurrency market has seen a multi-month decline. It peaked in November last year, 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 follow suit, and vice versa.

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

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

"Not yet. Never say never, especially in the cryptocurrency space. While there are potential catalysts, there doesn't seem to be systemic risk," said Edward Moya, senior market analyst at foreign exchange trading platform ACE.