What happened
Today, the term "blood bath" would be an ample description of how the crypto market has moved. As of 2 p.m. ET, the crypto market as a whole has dropped 6.3%. This move has been shaped by very strong underperformance among a number of high-growth altcoins today.
Among the larger-cap tokens, we've seen relative outperformance (if one can call it that) today. Binance Coin (BNB 1.30%), the world's third-largest cryptocurrency, dropped 5.4% over the past 24 hours as of 2 p.m. ET. Over this same time frame, the eighth- and 17th-largest tokens, XRP (XRP -0.24%) and Chainlink (LINK 1.00%), sank 6.1% and 4.8%, respectively.
Stocks, bonds, and crypto markets all plunged today, following the release of minutes from the Federal Reserve meeting yesterday which signaled the need for rate hikes and balance sheet reductions that could come sooner than expected. Investors across all risk assets have been selling for much of the past 24 hours, as concerns that easy money policies will be done away with have many questioning the sustainability of capital flows into higher-risk assets.
Image source: Getty Images.
So what
Binance Coin, XRP, and Chainlink are three very unique cryptocurrencies, representing blockchain networks providing unique end-user value. However, these large-cap tokens are also key beneficiaries of capital-chasing returns over the past year.
The market's concerns that capital may become more expensive in the near term is a valid and prescient issue. All tokens are likely to remain under pressure as the market engages in price discovery and investors seek out quality in this environment.
That said, the relative outperformance of these three tokens today suggests that these tokens are among the higher-quality cryptocurrencies investors are seeking out.
Now what
The crypto market is inherently much more volatile than other key asset classes such as stocks and bonds. However, many of the same catalysts for equity and fixed income markets have impacted this sector as well. Thus, there's a correlation building across these asset classes investors need to be aware of.
Capital flows matter, and it's an understatement to say that crypto investors haven't benefited from the extended period of accommodative monetary policy we've seen. As the punch bowl gets taken away, the question remains as to which assets will come out ahead in this environment.
For now, investors appear to be logically and prudently taking a risk-off approach to many sectors, including cryptocurrencies. How prolonged this sell-off will be is unclear. However, the relative outperformance of these three tokens is not lost on many investors seeking quality and value.
