What happened
The markets opened with a thud today. Shares of streaming platform Netflix (NFLX +0.39%) sank 20.7% to start the trading day at 9:30 a.m. ET, with investors pricing in slower subscriber growth. However, as of that same time, cryptocurrency Loopring (LRC 15.76%) has actually dropped more than 21%, and it is currently pacing Netflix for losses today.
The crypto market is in turmoil today following the release of the highly anticipated Federal Reserve report on central bank digital currencies (CBDCs). While the Fed didn't take an official position on incorporating CBDCs into its toolkit, the central bank is exploring this option further. This has put pressure on the crypto sector as a whole, as investors look at CBDCs as a competitive force and a potential regulatory catalyst for the sector.
Image source: Getty Images.
Additionally, a marketwide de-risking of investor portfolios appears to be at play today. Tech stocks and cryptocurrencies are moving in higher correlation, increasingly being viewed similarly as high-risk, high-growth assets. During tech-driven sell-offs such as the one we've seen to start the year, that's not a good thing for tokens such as Loopring.
So what
As yet another Ethereum scaling protocol, Loopring has been viewed by many investors as a means of playing amplified growth on the Ethereum network. Of course, as investors de-risk their portfolios, tokens that offer leveraged upside or downside are getting hit the hardest today. Loopring happens to be among the biggest decliners of the top 100 tokens today.
How long this high correlation lasts between cryptocurrencies and tech stocks remains to be seen. However, seeing the impressive downside of Netflix mirrored by specific crypto tokens certainly rings alarms for some investors who are taking a risk-off approach this year.
Now what
Like many tech stocks, cryptocurrencies are facing a number of headwinds right now. Traders and speculators appear to be getting pushed out, leaving long-term investors and "true believers" holding on right now.
For those who truly believe in the long-term growth potential of the crypto sector, perhaps this dip is a great buying opportunity. Of course, this view must be balanced with the possibility that the market could continue dropping. Right now, uncertainty over where the bottom is for tech stocks and crypto tokens is driving amplified fear.
For those looking to be greedy when others are fearful, today's price action suggests that's easier said than done.
