A crypto crash that began Friday afternoon continued over the weekend and picked up the pace on Monday morning. It didn’t help that the stock market was down big with growth stocks taking another step lower.
What’s crazy to look at is the day’s volatility. From peak to the low point, Bitcoin fell 9.9% in the last 24 hours, Ethereum fell 15.3%, Dogecoin dropped 7.3%, and Solana fell 20.7%. Those are wild moves for any asset class, but given that these cryptocurrencies all have market caps over $15 billion there’s a lot of money being lost in the crypto market.
We know the moves are big, but what’s going on?
I mentioned that one of the biggest impacts is the market overall falling and in particular a move out of what are known as “risk assets” like growth stocks and cryptocurrencies. Investors are worried the Federal Reserve will increase interest rates in 2022 and cause the economy to slow down, which would reduce revenue growth.
On the public policy front, there are some headwinds as well. Russia is following China’s lead in proposing a ban on cryptocurrencies. That’s not a huge market on the world stage, but more countries banning crypto can’t be good news.
In the U.S., the Biden administration is preparing executive orders to outline a government strategy on cryptocurrencies. It’s unclear exactly what that means, but the U.S. is clearly starting to think about how to define rules for the cryptocurrency industry. Given the uncertainty about what policy will look like, it’s not surprising to see the industry down today.
The drop in cryptocurrency values has been taking place slowly for months but over the last few days the selling has accelerated. This could be a sign that some investors are giving up on the space as liquidations of leveraged positions pick up and peaked at over $1 billion per day over the weekend. And with little in the way of fundamentals to fall back on it’s hard to see where the selling stops.
What I continue to look at in cryptocurrency is the utility being built on blockchains like Ethereum and Solana, which are allowing new types of business and funding models to emerge. Long-term, this is why I’m bullish on the industry overall, but that doesn’t mean that the selling we are seeing won’t accelerate before it turns around.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.