What happened
Double-digit declines on a given day are one thing. However, when we see a number of top cryptocurrencies lose more than 20% in a given day, that's truly something to behold.
As of 10:15 a.m. ET, Near Protocol (NEAR 1.01%), Alogrand (ALGO 5.53%), and Theta Network (THETA 0.91%) lost 20.1%, 21.8%, and 28.6%, respectively.
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This extremely bearish price action among three otherwise solid crypto projects is telling. Late this past week, investors and traders saw fit to sell just about everything that fit neatly into the higher-risk category. Rising U.S. Treasury yields led to a rerating of risk assets, which happened to include cryptocurrencies.
This rerating of risk assets has led to forced liquidations across the crypto world. Over the past 24 hours, forced liquidations totaled more than $1 billion as of 10:15 a.m. ET, according to Coinglass.com.
Near Protocol's recent $150 million funding round aimed at growing developer interest in this network for Web3 applications has done little to stem the selling pressure this weekend. For Algorand, a highly scalable proof-of-stake blockchain network and Theta, a decentralized broadcasting protocol, these macro headwinds have overshadowed the bullish catalysts that have largely taken these tokens on an impressive climb over the past year.
So what
The rather indiscriminate selling in recent weeks has many crypto investors running for the hills. We've seen what momentum can do on an upswing, with many of these popular tokens absolutely taking off in spurts over the past year. However, when momentum picks up to the downside, this bear market can get ugly. Right now, folks seem to be banking on a harsher crypto winter than previously anticipated.
This amplified momentum can be partly attributed to the use of leveraged derivatives in the crypto world. Forced liquidations, like margin calls in the equities world, amplify selling pressure during bear markets. Seeing forced liquidations break through the $1 billion barrier over the past 24 hours could signal more volatility on the horizon.
Now what
All investors, in crypto or any other asset class for that matter, have no control over certain macro factors that affect asset valuations in the near term. The overly hawkish monetary policy stance that's now being taken by the Federal Reserve and other central banks around the world is being priced into all higher-risk assets. Exactly when the market will determine that this headwind is fully priced in remains to be seen.
Longer-term investors may look at this recent bout of volatility as an intriguing entry point on certain tokens. Sure, no one wants to catch a falling knife. However, for projects investors are very bullish on over the long-term, this intense selling pressure could provide an attractive entry point. That's because cryptocurrencies have a way of snapping back hard from downturns, historically speaking.
For now, I'm not going to add to my Algorand position just yet. However, these three tokens are all on my watch list and are starting to get very attractive as their prices keep falling. Crypto is a long-term game, and patience has often been rewarded.
