What happened
Black Friday has been a day of red for the overall cryptocurrency market, with most major tokens posting sizable sell-offs. Cardano (ADA -3.76%), Ripple (XRP -1.60%), and Avalanche's (AVAX -3.07%) tokens were down roughly 7%, 9%, and 11%, respectively, over the previous 24 hours, as of 5:30 p.m. ET. Bitcoin was down roughly 8% and Ethereum's ether token fell roughly 9%.
Cryptocurrencies aren't alone in posting big sell-offs recently. In general, investors have been moving out of high-risk investments, and stocks got hit hard in today's trading as well. Friday's sell-offs in the cryptocurrency market may be most closely tied to the emergence of a new COVID-19 strain, but other factors are likely at play as well.
Image source: Getty Images.
So what
A new coronavirus variant has been discovered in South Africa, and health officials are concerned that it appears to be highly transmissible and capable of bypassing current vaccines. The news of this new variant, dubbed Omicron, corresponded with steep pricing pullbacks for cryptocurrencies and stocks.
The S&P 500 index ended the day down roughly 2.3%, while the Nasdaq Composite and Dow Jones Industrial Average fell 2.2% and 2.5%, respectively. Stocks and cryptocurrencies don't always see high levels of market movement correlation, but this is a case where the distinct markets were moving in tandem.
In addition to bearish pressure stemming from concerns about the new COVID mutation, valuations for many cryptocurrencies have slipped amid recent regulatory developments and the perception of elevated risk for future crackdowns. China declared all cryptocurrency transactions illegal late in September, and it's subsequently continued to crackdown on miners and others deemed to be violating its policies on digital tokens.
The infrastructure spending bill recently signed into law by President Biden also created new rules for crypto brokers, and it's not unreasonable to think that additional domestic regulations and taxes could be in the pipeline. Most recently, India introduced legislation that will ban effectively all private cryptocurrencies, triggering additional sell-offs.
Despite recent sell-offs, Avalanche's AVAX token is down just 3% over the last seven days of trading. The cryptocurrency had been making some big gains following news that consulting giant Deloitte is building new software for disaster relief management on top of the Avalanche blockchain, but its token price has retreated in response to broader market trends.
Without a major positive recent pricing catalyst recently, Ripple's XRP token has gotten caught up in the bearish momentum impacting the broader crypto market and is down roughly 12.5% over the last seven days. Ripple is currently engaged in a lawsuit with the Securities and Exchange Commission over whether its XRP token should be classified as a security. The lawsuit is expected to conclude next year, and CEO Brad Garlinghouse recently indicated that some favorable progress on the case was being made, but regulatory impacts remain a concern.
Cardano has seen a particularly steep drop over the last week of trading, with its price per token down roughly 15% across this stretch. Trading platform provider eToro announced on Nov. 23 that it would be limiting trading of Cardano's ADA token and TRON's TRX token due to "business-related considerations in the evolving regulatory environment."
Now what
Pricing volatility is the norm in the crypto space, and it's helpful to put recent moves in context. Even with the substantial recent sell-offs, Cardano, Ripple, and Avalanche's tokens have each posted stellar gains across 2021's trading.
Avalanche Price data by YCharts
Cryptocurrency pricing trends have tended to be highly cyclical, but investors should proceed with the understanding that it's difficult to pinpoint the transitions from bearish to bullish momentum, and vice versa, with a high level of accuracy.
The crypto market will likely continue to be highly volatile in the near term. Investors may want to approach sell-offs as an opportunity to build positions in top cryptocurrencies, and it's possible that Cardano, Ripple, and Avalanche's tokens will deliver more of their huge gains, but it's worth keeping in mind that they remain high-risk investments.
