Why Cryptocurrencies Megacap Bitcoin, Ethereum and Binance Coin Are Plunging Today


What happened

The top three in the standings cryptocurrencies (excluding stablecoins) in terms of market capitalization are Bitcoin (CRYPTO: BTC), Ethereum (CRYPTO:ETH), and Binance Coin (CRYPTO: BNB). When these three tokens are moving, especially in the same direction, the whole market tends to follow. Today, they are all seeing double-digit declines over the past 24 hours, down 10.2%, 12.6% and 10.1%, respectively, as of 11:30 a.m. ET.

The entire crypto market is under siege, primarily due to macro factors such as rising US Treasury yields. The anticipation of further interest rate hikes on the horizon is driving down the valuations of most risky assets. Recently, a higher correlation between cryptocurrencies and high-growth tech stocks has led to a massive rotation of capital out of these sectors.

Image source: Getty Images.

According to reports, forced liquidations in the crypto world have exceeded $600 million in the past 12 hours. Bitcoin and Ethereum accounted for more than half of these total liquidations.

Additionally, market sentiment appears to be entering extremely bearish territory. Assets that have benefited from bullish sentiment over the past year are reverting to their longer-term average. It remains to be seen how long this reversal will take.

So what

There’s a lot to unpack with today’s price action in the crypto world. Indeed, seeing the three largest cryptocurrencies in the world decline in double digits is not something investors see every day. Right now, sentiment is extremely lousy in the crypto world and investors seem to be looking for safe places to hide.

The thing is, Bitcoin and Ethereum have, for the most part, been among the “safe haven” assets that many crypto investors have turned to. Forced liquidations and capital outflows from cryptocurrencies appear to be more important to investors than the hedging attributes of these major tokens at this time.

Now what

Crypto investors, and equity investors for that matter, cannot control the macro narrative. Investors are panicking right now, as evidenced by these incredible drops among major cryptocurrencies today. So far, 2022 is shaping up to be quite volatile (to say the least) for the overall crypto market. The fact that these three major tokens are acting more like smaller-cap tokens is not a good sign for those who are bearish on the near-term outlook for the crypto sector.

That said, longer-term investors may view these declines as buying opportunities. The best time to pick up stocks or tokens from the companies or cryptos you love is when there is blood in the streets. Finding an exact bottom is impossible, and there may indeed be more downsides from here. Accordingly, investors should trade with caution in this environment, bullish or not.

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Chris MacDonald owns Ethereum. The Motley Fool owns and recommends Bitcoin and Ethereum. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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