Panic sets in
If you thought Friday's crypto sell-off was intense then you'll be shocked to see the state of trading on Saturday. Many cryptocurrencies were down by another 25% with some falling 30% in the last day.
Solana (SOL +7.32%) fell as much as 26.8% in the last 24 hours as of 1:00 p.m. ET, Polkadot (DOT +13.87%) dropped 24.7%, Chainlink (LINK +7.86%) lost 24.8%, and The Sandbox (SAND +5.46%) plunged 27.1%. All four are down over 20% over in trading over the last 24 hours.
Zooming back even further, Solana is down 37.2% over the past week, Polkadot is down 36.7%, Chainlink fell 38.9%, and The Sandbox plunged 39.3%. The selling was bad this week, but Saturday only intensified the pain.
Image source: Getty Images.
Why the crypto market is in panic mode
The word of the day is "panic". The crypto market has gone into such a frenzy that investors are panic selling and that's causing a number of problems.
One issue is that it's clogging networks that can't currently handle the traffic they're seeing. Ethereum's (ETH +10.79%) gas cost (or the cost validators charge to complete transactions) spiked late on Friday afternoon and has remained higher than usual ever since. Networks like Solana have been crushed by traffic and it's become difficult to buy, sell, or transfer cryptocurrencies or underlying positions.
I often look at the level of liquidations as a key indicator of the short-term moves in cryptocurrencies. Liquidations are done by brokers or exchanges to cover leveraged positions and often happen when prices drop quickly, exacerbating the panic. Over the last 24 hours, $1.11 billion in positions have been liquidated across cryptocurrencies, according to coinglass.com, but the liquidations have slowed with only $79 million in the last four hours.
It's also worth noting that liquidity is likely having an impact on trading. On weekends, some investors who provide liquidity take time off because the stock market is closed and that lack of buyers right now could be making the problem worse.
Sandbox and Chainlink experienced particularly heavy trading volumes in Saturday's sell-off. This makes sense given their smaller market footprint, which leaves these tokens open to wider and faster price swings than their more mature cousins. Polkadot and Solana are more stable thanks to their more substantial market presence -- but that didn't make them immune to this weekend's panic.
Where is the bottom?
The challenge for cryptocurrencies is that there aren't fundamentals to fall back on. There's no price-to-earnings ratio, no assets on the balance sheet, and no value investors waiting to scoop up the dip. Positions are also concentrated among a small number of holders, who may not be in the market buying and selling on a regular basis, meaning there's less cryptocurrency actively moving in the market than market caps make it seem.
We simply don't know when we will hit the bottom and I worry that it may get worse in the next few weeks and months. The lack of fundamentals could cause some who were trading crypto to simply abandon the market altogether.
The good news is that many cryptocurrencies have been steadily building more utility and functionality into their blockchains. NFTs are a start of that, as are games like The Sandbox, and more development is coming. Long-term, this is what's going to drive value in cryptocurrencies but that will take decades and in the meantime, valuations are plummeting with no end in sight.
