What happened
Today, it’s an absolute bloodbath in financial markets. Besides bonds, which are doing OK, stocks and cryptocurrencies are getting absolutely ravaged by the news of the Russian invasion of Ukraine yesterday evening. At noon ET, top-10 cryptocurrencies Binance Coin ( BNB ), XRP ( XRP -2.60% ), and Solana ( SOL -2.69% ) had dropped 9.4%, 10.7% and 6.1%, respectively, over the past 24 hours.
These moves reflect increasing concern around the higher correlation we’ve seen form between stocks and cryptocurrencies. Specifically, this correlation between more speculative, high-growth equities and most digital tokens is of concern to crypto investors overall.
Image source: Getty Images.
So what
Binance Coin, XRP, and Solana are three projects generally considered to be among the most stable long-term holdings a crypto investor can own. Many may have bought these tokens with the understanding that crypto is a low-correlation asset, or one that may move less in line with equities than other asset classes.
Of late, this hypothesis has been tested, and it is starting to fall apart. Like other risk assets driven by incredible capital inflows in recent years, this macroenvironment is one that’s inherently bad for growth stocks. For cryptocurrencies, one might argue that increased concern over financial sanctions may actually boost top tokens like XRP that are used for cross-border payments. No such view is being taken today by investors, many of whom are liquidating positions and asking questions later.
Now what
For crypto investors looking at a sea of red today, it’s really hard to say which perspective to take in terms of whether to add to one’s positions or take some cream (if there is any) off the top. Profit taking has been happening for some time and may continue to drive downside pressure for assets that have run up in incredible fashion through late 2021. Thus, the ultimate floor in this bear market in crypto is very difficult to see right now.
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.
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