Altcoins had a tough day that started late Monday evening and lasted through Tuesday. Major cryptocurrencies were the leading lower, but smaller coins added to the losses of larger cap coins in Tuesday’s trading.
XRP (CRYPTO: XRP) has fallen 8.3% in the last 24 hours, Cardano (CRYPTO: NO) fell by 7.7%, Chain link (CRYPTO: LINK) fell by 12.4% and Crypto.com coin (CRYPTO: CRO) is down 10.3% to name a few. There are a few things that are likely to affect trading today.
The first point to note is that all cryptocurrencies are down, which can lead to a cascading decline in the market. Coinglass.com reports that $ 521 million in long crypto trades were liquidated from 164,115 accounts in the past 24 hours. The sale began on Monday as $ 418.5 million of long positions were liquidated, so liquidation appears to be picking up pace on Tuesday.
This may not seem important, but when traders borrow money on margin to take a long position (bet on an asset that it will go up in value) or a short position (bet on an asset to lose value in value) they can be forced to sell immediately if you lose too much money. Brokers and exchanges require that a certain percentage of an account be held in cash or worth of a security so that these positions can be liquidated if a portfolio contains too much leverage.
The last time cryptocurrencies fell so quickly was on December 2nd and 3rd, when over $ 2 billion in crypto was liquidated on a multitude of exchanges. In the days that followed this crash, cryptocurrencies stabilized, but today’s selling has pushed some prices down near the lows from a month ago.
In the absence of real news driving the cryptocurrency market, I would lead today’s transition to normal volatility. There is generally lower trading volume in the market this week and that can lead to strange moves. There is a lot of leverage in cryptocurrency from a lot of traders and that can lead to the kind of liquidations I mentioned above, which trigger a quick sell-off.
As the market returns to more normal trading in early 2022, I think it’s important to see more people using crypto as a utility, be it with NFTs or decentralized financial products.
I think the cryptocurrencies that can build the best ecosystems will ultimately be the winners for investors. XRP, Cardano, Chainlink, and Crypto.com are all building their own views on a cryptocurrency ecosystem and that’s why investors have been bullish on them. In the long run, it is these ecosystems, not the volatility of a few trading days, that investors should focus on, which is why today’s big step should be ignored in the long run.
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.