Central bank digital currency talk sinks Bitcoin, Ethereum and Solana today

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What happened

Today’s move in three of the top five cryptocurrencies by market capitalization represents another downward reversal for these major tokens. Bitcoin (CRYPTO: BTC), Ethereum (CRYPTO:ETH), and Solana (CRYPTO:SOL) saw declines of 2%, 2.7% and 5.4%, respectively, in the past 24 hours, as of 10:15 a.m. ET.

Today, these declines have roughly halved the weekly gains of each of these major tokens. Bitcoin’s gain over the past seven days stands at 3.4%, followed by Ethereum and Solana at 2.8% and 6.7%, respectively.

Today, it seems that the Federal Reserve’s recently announced look at the introduction of a central bank digital currency (CBDC) has spooked crypto investors. While the Fed said it began investigating a CBDC in July, this week Fed Chairman Jerome Powell said the finalized report should be available “within weeks.”

A bill proposed by Republican Rep. Tom Emmer would already seek to stem the power the central bank would have to compel users to open Fed accounts to use a CBDC. This has led some to believe that a CBDC is right around the corner, an obviously negative catalyst for the cryptocurrency market as it stands today.

Image source: Getty Images.

From a token-specific perspective, there are not many negative catalysts to consider for these top tokens. Some positive news for Bitcoin around To blockBitcoin’s move into mining is overshadowed by negative sentiment in the crypto space today. The company led by Jack Dorsey aims to provide an open Bitcoin mining system, decentralize mining, and improve the reliability and resilience of the Bitcoin network.

Report that Attached had frozen around $160 million of its tokens on the Etheruem blockchain in connection with a law enforcement request seems to have spooked the crypto market.

For Solana, recent network downturns are a key factor that investors continue to watch. However, not much negative news, outside of today’s macro catalyst, seems to be driving this token today.

So what

The declines in these three major tokens sent the overall crypto market down around 2.9% in the past 24 hours. This is not necessarily surprising, given that these three tokens represent well over half of the market capitalization of the entire cryptocurrency market.

However, this news that a central bank digital currency could be around the corner is significant. Investors looking to de-risk their portfolios by heading into what could be a volatile catalyst seem to be looking to do so before this news arrives.

Now what

Whether or not the Federal Reserve will decide to move forward with its own cryptocurrency remains to be seen. However, the centralization of this decentralized movement is certainly a risk that many investors have thought about for a long time. It remains to be seen how well conventional cryptocurrencies will thrive among a true USD-backed cryptocurrency.

Regulatory overhead has always been a factor that crypto investors have had to deal with. However, today this threat seems to be intensifying. As a result, investors are now seeing some divergence from equity returns that has not been seen for some time.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end consulting service Motley Fool. We are heterogeneous! Challenging 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 wealthier.

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