What happened
The cryptocurrency market is getting hit with more sell-offs today. Most top-100 tokens have seen valuation slides, and Bitcoin (CRYPTO:BTC), Ethereum‘s (CRYPTO:ETH) ether token, and Dogecoin (CRYPTO:DOGE) were down roughly 0.8%, 2.9%, and 2.5%, respectively, over the last 24-hour period as of 5 p.m. ET Thursday.
Rising bearish pressures are gripping the market, and investors have generally become more risk averse lately. Federal Reserve Chairman Jerome Powell made comments yesterday indicating the central bank will raise interest rates soon, and it looks like the increase may be one of many. Uncertainty continues to shape valuations in the crypto space.
Image source: Getty Images.
So what
While many top tokens are backed by decentralized ownership and governance structures, it’s clear that the cryptocurrency market does not exist in a valuation vacuum. Amid the backdrop of aggressive stimulus spending initiatives and basement-level interest rates, valuations for cryptocurrencies made big gains over the last few years. However, the market is getting hit with volatile sell-offs on the heels of some recent shifts.
Yesterday’s comments from Powell point to an interest rate hike in the next couple months and additional increases later in the year. Rising rates and reduced stimulus initiatives signal a less favorable backdrop for high-risk growth investments, and the shift arrives at a time when regulatory pressures could also be increasing.
The Biden administration is reportedly eying an executive order introducing new regulations on cryptocurrencies that could be rolled out as early as February, and China, India, and Russia are among other countries signaling tougher stances on digital tokens. If that’s not enough negative valuation catalysts for you, the crypto market has also been impacted by underwhelming performance updates from growth-dependent companies including Peloton, Netflix, and Tesla.
Now what
Even after recent sell-offs, Bitcoin, Ethereum, and Dogecoin have all managed to post substantial gains over the last year of trading.
Bitcoin Price data by YCharts
However, the gains also exist in the context of some dramatic volatility. Looking at the market’s two most valuable cryptocurrencies, Bitcoin now trades down roughly 48% from its high, while Ethereum’s ether token is down 51.5% from its peak.
The valuation gulf for Dogecoin is even more staggering. The popular dog-themed token is up an incredible 1,830% over the last year of trading, but it’s also down a staggering 81% from the high it hit last May.
While the macroeconomic backdrop is shifting, top cryptocurrencies have been feeling the squeeze lately, and pressures could continue in the near term. The cryptocurrency market has been highly volatile across its relatively short history, and investors will have to weigh the potential for explosive returns against the possibility that a more pronounced bearish cycle could push token valuations lower.
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.
