Cryptocurrencies are in decline across the market today and altcoins are bearing the brunt of the decline. Smaller cryptocurrencies tend to be more volatile than their larger competitors, and that can lead to some big moves.
As of 3:20 p.m. ET, within the last 24 hours Cardano (CRYPTO: NO) decreased by up to 3.6%, Speckle (CRYPTO: POINT) even fell by 7.3% and Crypto.com coin (CRYPTO: CRO) 5.5% down. Over the past week, these cryptocurrencies are down 5.8%, up 0.6% and down 7.4%, respectively.
The Federal Reserve has been the topic of conversation for the past 24 hours after suggesting it might hike rates “sooner or faster than participants expected”. March is believed to be the likely time that short-term rates will rise, and the market fears it may be even sooner.
Fed officials also talked of slashing its balance sheet in 2022, which would mean dramatically pulling back on the bond purchases it made in both the government and corporate bond markets. This is known as quantitative easing and has helped keep interest rates low for much of the past decade.
These are not entirely surprising things, but the market had been hoping for the past few weeks that the incentives and low interest rates would last a little longer. The Fed is considering withdrawing this policy even sooner now.
How is crypto incorporated into these movements? The reality is that cryptocurrencies are currently trading growth stocks. So when news hits the market that hurts growth stocks, crypto usually falls with it. This is often referred to as a “risk-off” trade, in which riskier assets are sold in favor of “safer” assets, and this dynamic is damaging crypto today.
Cryptocurrencies are usually volatile, but the past 36 hours have been unusually choppy for crypto markets. Many cryptocurrencies have fallen over 10% and they don’t seem to be recovering very quickly. This could be part of a long-term trend in the market away from risky assets like growth stocks and cryptocurrencies, which is slowly depressing prices.
With the Altcoins Cardano, Polkadot and Crypto.com Coin in particular, I would be more concerned that their ecosystems will be built up over the long term. They are all trying to attract users and developers to build an ecosystem of decentralized finance, NFTs, marketplaces, and other apps on their blockchains. It is this development that will add value to investors in the long run, and the Federal Reserve or a growth stock sell-off is not going to stop this innovation.
I think today’s volatility should be ignored for the long-term growth picture in the cryptocurrency space. We are seeing improved utility and applications develop and that will create a lot of value for long term investors.
This article represents the opinion of the author who may disagree with the “official” referral position of a premium advisory service from the Motley Fool. We are colorful! Questioning an investment thesis – even one of our own – helps us all reflect critically about investing and make decisions that will help us get smarter, happier, and richer.