What happened
Cryptocurrencies had a rough start to the week, continuing a decline over the last few weeks. All major cryptocurrencies are down double digits over the last month and today has made the losses even worse.
As of 2:15 p.m. ET, Polkadot ( DOT -7.30% ) had fallen as much as 12.2% in the last 24 hours, Solana ( SOL -7.31% ) had lost up to 11.7% of its value, and Cardano ( ADA -6.76% ) had dropped 11.6%.
Image source: Getty Images.
So what
The general fear in the market is that inflation data will show another increase in prices when the consumer price index is released tomorrow. Cryptocurrencies were supposed to be a hedge against inflation, but that thesis hasn’t played out as expected over the last six months and as inflation has gone up cryptocurrencies have fallen, just like highly volatile growth stocks.
Speaking of growth stocks, investors are selling shares of tech and growth stocks today as well, which is often correlated to a move in cryptocurrencies. That’s holding today and it looks like a classic “risk-off” trade as investors worry about the likelihood of increased interest rates on the horizon.
The other elephant in the room is U.S. taxes being due later this week. Investors who made a lot of money in cryptocurrencies in 2021 may have been hit by a surprise bill, causing a liquidation of cryptocurrency positions in order to pay it.
Now what
While there are some small explanations for today’s move in cryptocurrencies it’s important to keep in mind that this is still a volatile space. Investors should be focused on the long term and what’s being built on the blockchain and how that may impact cryptocurrency values, not the daily price movements of crypto.
This also looks like a broad market move to sell riskier assets in favor of assets that are deemed safer. That’s not unusual in an environment where interest rates are rising, but it can be jarring nonetheless. Just remember that the market has been expecting rising rates in 2022 for months and unless there are big surprises a lot of the rate changes should be priced into the market.
I actually think days like this are a good buying opportunity for long-term investors. The building the developers and blockchain organizations are doing doesn’t stop when the market is down and there are billions of dollars flowing into these projects right now.
Long-term, Solana, Polkadot, and Cardano are all built to bring utility to the blockchain, disrupting the way we think about digital assets. That should be a good position to be in, even if the ride is volatile along the way.
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.
