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Why Ethereum Was Sliding Today

By Jeremy Bowman – Dec 20, 2021 at 3:29PM

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The popular cryptocurrency pulled back on a broader sell-off.

What happened

The price of Ethereum (ETH 5.24%), the world's second-largest cryptocurrency by market cap, was slipping today on a broader sell-off in crypto and stocks.

As of 2:31 p.m. ET, Ethereum was down 1% over 24 hours after losing as much as 4% earlier in the day.

A man holding a bubble that says Ethereum on it.

Image source: Getty Images.

So what

The only Ethereum-specific news out today was positive, as the Ethereum Foundation launched the Kintsugi Merge testnet, a step in the process to Ethereum's Merge, which is its transition to Eth2, a set of upgrades that will make the cryptocurrency more scalable, secure, and sustainable.  

However, that news wasn't enough to push the token's price higher as Ethereum instead pulled back with the rest of the crypto and stock markets. Most high-profile cryptocurrencies and stocks were down today on fears of the omicron variant, which is already driving a spike in cases in the New York area. Investors are fearing that it could cramp the global economy, especially ahead of the busy holiday travel season.

The explanation for cryptocurrencies being down on the omicron news is less direct. You might expect another COVID-19 outbreak to drive gains in cryptocurrencies, as digital currencies benefitted from the initial phases of the pandemic and related lockdowns.

However, that hasn't been the case. The new asset class has largely moved in tandem with big stock market moves because investors still view crypto as a risk asset. It goes up as risk appetites increase and it goes down as investors look for safer assets. 

Now what

There are few fundamental drivers when it comes to cryptocurrencies as the asset class is devoid of metrics that guide other productive asset classes like stocks or real estate.

However, Ethereum, which is the network on which most non-fungible tokens (NFTs) are bought and sold, has more real-world utility than any other crypto, and that along with its usage should help guide its value.

Still, it's helpful to remember that cryptocurrencies are still likely to move with the broader direction of the stock market, and increased worries about omicron and an extended sell-off in stocks will likely push Ethereum lower.

Jeremy Bowman owns Ethereum. The Motley Fool owns and recommends Ethereum. The Motley Fool has a disclosure policy.

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