What happened
Many major cryptocurrencies dropped again on Friday as investors continued to sell on the news of crypto exchange-traded funds hitting the market. As of 1:30 p.m. EDT Bitcoin (BTC 0.29%) was down 3.3% over the past 24 hours, Ethereum (ETH 1.73%) had fallen 3.3%, and Dogecoin (DOGE 1.70%) was off 3.1%. This follows a sell-off in most cryptocurrencies yesterday.
There wasn't any major news out today about cryptocurrencies themselves or new regulations, but that hasn't stopped the sell-off.
Image source: Getty Images.
So what
Strangely enough, the drop in crypto prices started on Wednesday when ProShares Bitcoin Strategy ETF (BITO 2.79%) hit the stock market. Investors have been speculating for weeks that crypto ETFs would bring a new breed of investors into the industry, pushing prices even higher. So, this is a little of a "buy the rumor, sell the news" dynamic for cryptocurrencies.
Technical traders have also pointed to indications that Bitcoin was poised to pull back from all-time highs to about $60,000, where it seems to be holding for now.
The chart below shows that major cryptocurrencies have been rising during the past month. Bitcoin, Ethereum, and Dogecoin are all up by double-digits percentages, as of Thursday.
Bitcoin Price data by YCharts
There were a few tailwinds during the past month that are more important to long-term investors than the retreat the past few days. One is the fact that the Securities and Exchange Commission is allowing ETFs to reach the market, which will open crypto to more investors. The other is that regulators have said repeatedly this month that crypto is here to stay, although they still haven't determined how to regulate the industry to protect consumers.
Now what
Volatility is normal for cryptocurrencies, so if you're a long-term believer in the industry there's no reason to sell now. The rally leading up to the introduction of the ProShares ETF may have simply gone too far and now speculators are cashing in what they had purchased.
What I'll be watching during the next few months is how the crypto industry responds to potential regulation. Regulators have been largely hands-off to this point, but if crypto is going to become an accepted currency or utility coin there will need to be regulatory clarity around some of its uses. This may sound bad to investors attracted to cryptocurrency's decentralization, but regulation brings legitimacy and will expand the market and demand.
There are also an increasing number of utilities for different cryptocurrencies, which could catch on long-term. This is where I think we'll see real value created by the cryptocurrency industry. But the infrastructure of utilities will take years to build out, which is another reason why I wouldn't be too worried about cryptocurrencies moving sharply one way or another on any given day.
