This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
What happened?
The value of major cryptocurrencies fell on Thursday as the stock market dropped and investors worried about inflation and the continuing Russian invasion of Ukraine. This follows a day when prices shot higher after President Joe Biden signed an executive order to study digital assets and investors hoped US regulators would finally define rules for cryptocurrencies.
As of 1pm ET, Bitcoin (CRYPTO: BTC) had fallen as much as 8% in the previous 24 hours, Ethereum (CRYPTO: ETH) was off as much as 6.3%, and Dogecoin (CRYPTO: DOGE) was down 7.4%.
So what?
Multiple headwinds have hit the crypto market today. The most notable was a report from the Labor Department that said inflation hit 7.9% annually in January, the highest rate in 40 years. High inflation could mean that the Federal Reserve will be more eager to increase interest rates in an effort to cool off the economy, which could mean lower asset values. Cryptocurrencies generally trade with risky assets, so that’s why they’re off sharply in trading today.
Inflation is also being driven by an increase in commodity prices like oil, partly as a result of bans on Russian oil imports around the world. High commodity prices can pull spending away from other parts of the economy, leading to a recession. So, investors are trying to balance the risk of a commodity-driven recession and the need for higher interest rates to control inflation.
As an asset class that’s been correlated with the stock market for the last six months, it’s no surprise that cryptocurrency values are dropping along with the market on today’s uncertainty.
Now what?
Volatility continues to be commonplace for cryptocurrency investors and that’s actually undermined some of the cases for cryptocurrency. Bitcoin specifically has proven not to be a very good hedge for inflation (see today’s reaction) or a safe-haven asset like gold. In fact, it’s traded more like a growth stock than anything else in the last year.
I still think the case for cryptocurrencies is the utility they can bring to markets. Financial transactions can happen in an instant, digital assets can be traded and verified on the blockchain, and more innovations will be built over time. That’s where the true value will come from and frankly doesn’t have much to do with the price of cryptocurrencies day to day.
As much as today’s move hurts, I think the executive order from the White House yesterday is far more consequential. It could pave a path to more digital asset ownership, cross-border transactions, and even the U.S. government creating its own digital currency. That’s very bullish for the industry long-term, which is why I’m holding cryptocurrencies and don’t plan on selling even on down days like this.
This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
The post Why Bitcoin, Ethereum, and Dogecoin dropped today appeared first on The Motley Fool Australia.
Wondering where you should invest $1,000 right now?
When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for over ten years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*
Scott just revealed what he believes could be the five best ASX stocks for investors to buy right now. These stocks are trading at near dirt-cheap prices and Scott thinks they could be great buys right now.
*Returns as of January 12th 2022
More reading
- Fancy getting your paycheque in crypto? You’re not alone
- The Bitcoin price is rocketing 8% today. What’s going on?
- Will soaring commodity prices hold back the Bitcoin price in 2022?
- 52% of Aussies will never put money in this investment
- How might Visa and Mastercard’s Russia ban impact the Bitcoin price?
Travis Hoium owns Ethereum. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns and has recommended Bitcoin and Ethereum. The Motley Fool Australia owns and has recommended Bitcoin and Ethereum. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
from The Motley Fool Australia https://ift.tt/IsHCwzf
Leave a Reply