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Why Bitcoin, Ethereum, and Dogecoin Plunged Today

By Chris MacDonald – Updated Jan 10, 2022 at 6:34PM

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Is now the time to buy the dip or just steer clear of cryptocurrencies?

What happened

The crypto market sell-off has continued into Monday, with most tokens down considerably in morning trading. Mega-cap tokens Bitcoin (BTC 5.46%) and Ethereum (ETH 4.67%) both broke through psychological barriers, with Bitcoin dipping below $40,000 per token and Ethereum diving below $3,000 per token this morning. Currently, both tokens are down, though losses have been limited to 0.6% and 2.5%, respectively, for Bitcoin and Etheruem over the past 24 hours, as of noon ET.

Notably, Bitcoin is outperforming the overall crypto market today, which is much deeper in the red on the whole. The entire crypto market has lost 1.7% over the past 24 hours as of noon Monday, also dipping below the psychological threshold of $2 trillion in terms of market capitalization.

Once again, meme tokens such as Dogecoin (DOGE 4.83%) are leading the way in terms of losses today. Dogecoin is currently down 4.4% over the past 24 hours.

Person sitting at table in front of laptop.

Image source: Getty Images.

So what

Investors appear to be continuing to move away from risky, growth-related investments toward more defensive asset classes today. In the stock market, the Nasdaq is once again leading losses among major indexes, as investors look toward safe havens. Guidance given by the Federal Reserve via meeting minutes published last week continues to haunt growth investors, who are now pricing in much more meaningful rate increases, sooner than expected.

In the crypto world, levels of "extreme fear" are being noted by various gauges of investor sentiment. For meme tokens such as Dogecoin relying on positive sentiment and investor interest, this current environment is one that's not friendly to the sort of parabolic growth trends many investors initially hoped for coming into 2022.

Now what 

This macro environment is one that is likely to test the mettle of the crypto market. Whether this is a market that is currently in bubble territory or not will likely be decided by the price action among major cryptocurrencies in the coming months. We've seen large declines before, and this could be yet another test for how resilient these digital currencies will be over the longer term.

For investors in more defensive tokens such as Bitcoin, often dubbed "digital gold," the relative strength investors are once again seeing today may be viewed positively. That said, outside of a few niche tokens, the crypto market is once again moving in high correlation, as capital flows out of the crypto world continue.

Chris MacDonald owns Ethereum. The Motley Fool owns and recommends Bitcoin and Ethereum. The Motley Fool has a disclosure policy.

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