Today turned out to be another dreadful day for the main crypto-currencies. Cardano (ADA 33.37%), XRP (XRP 20.47%) and Solana (SOL 20.93%) are among the top 10 tokens taking a beating. As of 12:45 p.m. EST, these three tokens have lost 11.5%, 9.4%, and 13.4% respectively in the past 24 hours.
The sharp decline in the cryptocurrency market over the past few weeks follows strong selling pressure on other risky assets, such as stocks. With the correlation between equities and cryptocurrencies increasing, likely due to a return of the same macro forces that have driven risk assets higher in recent years, a rush to exit is happening. Cryptocurrencies such as Cardano, XRP and Solana offer a riskier upside, which investors are not looking for at the moment.
Adding to the concern of cryptocurrency investors is the recent annihilation of the stablecoin Terra algorithmic ecosystem. Over the past week, Luna, the Terra blockchain token, has fallen from around $80 per token to around $0.01 at the time of writing. This is largely due to the release of Terra’s stablecoin, TerraUSD, from its peg. Currently, UST is trading below $0.40 per token (stablecoins are supposed to be pegged at $1).
Mass contagion seems to be a tail risk that many investors haven’t really factored into their valuation models (if they have any) in the crypto world. See also: Bitcoin’s gains are likely to be limited in the downtrend with first resistance at 36300/400.. With stablecoins (algorithmic and otherwise) experiencing increasing instability, this poses a real existential threat to the crypto industry as a whole.
This is because stablecoins power payments in the crypto space and are often used as exchange rates for various trading pairs and the all-important crypto derivatives market. Investors have to choose if they want to hang on and hold their position, or if they want to take a loss and move on. Right now, it seems like most investors in this market are focused on the latter option.
Cardano, XRP and Solana are down more than 75% from their 52-week highs. It’s a bloodbath, and the idea of hitting new all-time highs seems like a fairy tale in this environment. Read also: “Raise $10 Billion in Bitcoins”: This crazy plan by Terraform Labs to support its StableCoin!. In other words, investors don’t see the bottom. And when that happens, panic is what can drive the valuations of any risky asset to levels that many didn’t think possible, especially in such a short time.
For those who are optimistic about the future of the cryptocurrency industry and believe that Cardano, XRP, and Solana each offer unique utility for a digital future, this might be the kind of discount to consider. After all, previous crashes in the crypto industry have been resolved.
However, it is clear that risk appetite is far from what it used to be. With such cautious markets, it’s hard to be long, even at these depressed valuations. Therefore, until investors find a catalyst, I think volatility should remain mostly on the downside, at least in the short term.
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