Why Bitcoin, Ethereum, Solana, and Cardano Dipped Double Digits This Weekend


What happened?

The cryptocurrency market saw a sharp awakening on Saturday as major cryptocurrencies briefly fell more than 20%. As of 1:20 p.m. ET, every cryptocurrency with a market cap above $ 10 billion has fallen in the past 24 hours, except for the so-called stablecoins that track the US dollar and other fiat currencies.

Bitcoin (BTC -8.92% ) was the most notable move, falling as much as 25% since trading at 7:00 p.m. ET on Friday night to a low of $ 42,749 near 11:00 p.m. ET on volume of $ 2 billion per hour. Bitcoin’s value has stabilized around $ 48,280 as of this writing, but it’s still down 12% in the past 24 hours.

Ethereum (ETH -3.36% ) followed a similar trajectory. Reaching $ 3,575 on Friday night, Ethereum has now fallen 7.5% in the past 24 hours. Solana (GROUND -3.98% ) is down 7.1% over the same period while Cardano (ADA -8.96% ) fell 11.6%.

Image source: Getty Images.

What is happening?

There are a few potential reasons for this rapid change, but when prices move so rapidly outside of business hours, the primary driver is probably nothing more than panic. According to Justin d’Anethan of the crypto exchange EQONEX, as reported by Reuters, large holders have moved cryptocurrencies from wallets to exchanges where they can be more easily sold. If the big holders are selling and the retail investors are heavily leveraged in their cryptocurrency holdings, a collapse in values ​​can happen quickly.

Adding to the uncertainty is scheduled testimony before the U.S. House Financial Services Committee by executives from eight major companies, including Global Coinbase ( CASH -6.70% ), December 8. Congress is trying to figure out how to regulate the crypto market and these leaders are trying to guide that regulation without completely crushing their business models.

The large-scale sale of cryptocurrencies started about a month ago as growth stocks started to fall. en masse. The potential for inflation, slowing job growth, and the flight to safety have all hurt both growth stocks and cryptocurrencies, which appear to be highly correlated in the market. You can see below that the decline has been stable and this chart does not even include the decline of the last few hours.

Bitcoin Price Table

Bitcoin price given by YCharts

And after?

Volatility is normal in the cryptocurrency market, but the past week has been extreme. Large investors appear to be cashing in on the gains of the past two years, and the increase in volatility appears to be of concern compared to short-term price action for cryptocurrencies.

At the same time, investments in crypto infrastructure companies and utilities have only increased in recent months and years, so there are long-term benefits for the industry. But it could take years for these companies to mature.

I am concerned that new investors who have never experienced a stock market crash before have added too much leverage and are not prepared for sharp declines in volatile assets like cryptocurrencies. This shock can cause panic and a downward sales spiral. For at least a few hours earlier this weekend, this spiral has gripped the market. Given recent trends, I am concerned that a long-term downward spiral is starting.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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