What happened
The cryptocurrency market is getting crushed in today's trading. Chainlink (LINK 2.42%), Crypto.com Coin (CRO 0.06%), Ripple's (XRP -0.37%) XRP token, and Algorand (ALGO 1.28%) were down 14.6%, 16.6%, 13.2%, and 13.9%, respectively, over the previous 24-hour period as of 5:30 p.m. ET on Friday. Meanwhile, Bitcoin had fallen 11.2% and Ethereum's ether token was down 15.5%, and the big sell-offs have quickly shaved more than $200 billion in value off the total combined cryptocurrency market.
Russia's central bank shared a paper Thursday outlining a proposed ban on all cryptocurrencies, and the unfavorable news arrived at a time when the market was already moving out of risky bets. With macroeconomic headwinds including rising interest rates and Treasury bond yields creating a more challenging backdrop for the crypto market, investors were already on edge, and it also looks like disappointing performance from companies including Peloton and Netflix is factoring into the recent sell-off.
Image source: Getty Images.
So what
As of this writing, and excluding stablecoins, there wasn't a single token top-40 cryptocurrency that was positive over the previous day of trading. Most tokens in the category were actually down double-digits. Investors have been moving away from high-risk cryptocurrencies and stocks lately, and today's moves suggest the trend may be accelerating.
The paper published yesterday by the Bank of Russia outlined potential shifts for cryptocurrencies in the country. Russia has already implemented restrictions on using crypto tokens for the purchase of goods and services, but the new proposal potentially calls for bans on cryptocurrency trading and mining.
In addition to that negative catalyst, it looks like underperformance for some large, U.S.-based companies is also having a spillover effect on the crypto market. While the connection may seem tertiary, disappointing results from some key consumer products and services companies appears to be a factor in the cryptocurrency sell-off. News recently emerged that exercise hardware and services company Peloton plans to lay off 41% of its sales and marketing staff and halt production amid surging inventory, and this was followed up by a Q4 report from Netflix that fell well short of expectations and crushed the streaming leader's valuation.
If that weren't enough, holders of Crypto.com Coin also had to contend with a network-specific catalyst prompting sell-offs. The organization published an update yesterday announcing that 483 users on its platform had lost a combined total of nearly $34 million in holdings due to a security breach.
Now what
Between rising inflation, the Fed's plans to raise interest rates, and potentially concerning economic data, there are a multitude of factors that have prompted steep sell-offs for high-risk investments lately. The market has been anticipating Q4 earnings reports as a key indicator, and relatively underwhelming performance from some big names helped trigger a risk-off sentiment on Friday that's extended to the crypto market. At this point, it seems reasonable to think that more disappointing Q4 numbers for growth-dependent companies could create additional valuation turbulence for crypto.
In recent months, cryptocurrencies have hardly been immune to macroeconomic pressures and the shifting tolerance for risk among investors. If investors continue to become more risk averse, cryptocurrencies could be in for a more prolonged bearish stretch. Digital tokens are sometimes touted as a safe haven from macroeconomic volatility, but trading in recent months now seems to be putting that thesis to the test, and investors should be prepared for more volatility in the near term.
