What happened
The intense selling pressure we saw ending the trading week for stocks continued into the weekend in the crypto market. Three of the top 11 tokens by market capitalization, Bitcoin (BTC -4.70%), Ethereum (ETH -5.23%), and Dogecoin (DOGE -4.92%) showed negative 24-hour returns of 5.1%, 8.4%, and 9%, respectively, as of 5:30 p.m. ET.
Capital outflows have led to spot price declines across most major cryptocurrencies, as investors take a risk-off approach to all assets. This week's move higher in U.S. Treasuries signaled the bond market is pricing in a near-certain Fed hike in March. This led growth investors to sell off anything remotely speculative, with the crypto sector among the hardest-hit asset classes in the market.
Image source: Getty Images.
These spot price declines have been accelerated by forced liquidations, centered around Bitcoin and Ethereum. Liquidations for the world's two top cryptocurrencies totaled more than $471 million, or approximately 60% of all forced liquidations in the market. Dogecoin took 7th place on the list, with $12 million in liquidations over the past 24 hours.
Recent tweets from Elon Musk supporting Dogecoin haven't been enough to keep this meme token above water this week. For Bitcoin and Ethereum, it appears investors have their eye on smaller competing blockchains, amid a capital rotation that seems to have legs right now.
So what
Bitcoin and Ethereum benefit from the largest ecosystems of any blockchain networks, and therefore the capital flows matter for these top tokens. With capital rotating out of the crypto space, these tokens are getting hit hard right now.
Meme tokens such as Dogecoin are among the most sensitive to market sentiment, and they are among the most volatile tokens in the crypto world. Dogecoin has been on a wild ride in recent years, riding a speculative surge that many experts believe is driven more by brilliant marketing than by fundamentals. Accordingly, the potential downside for many of these difficult-to-value digital currencies could be significant, and traders are taking note of the near-term risks.
Now what
These strong macro headwinds appear unrelenting at the moment, and little in the way of reprieve is being reflected in these tokens' valuations. While Bitcoin, Ethereum, and Dogecoin have each bounced off their daily lows, these tokens each have lost more than 45% of their value in a few short months.
This bear market is now being referred to by many as a crypto winter. Right now, the market appears to be taking the view that this could be a rather brutal storm. While traders and speculators take cover, the question is whether long-term investors will step in at some point to pick up these tokens at a discount. After all, top tokens such as Bitcoin and Ethereum have historically bounced back in incredible fashion from steep sell-offs in the past.
Right now, there's not much divergence between the performance of top-quality cryptocurrencies and meme tokens, so all bets are off. However, there's likely to be some stabilization at some point. When that happens is anyone's guess.
