What happened
Today marked a big day in the stock market, with the S&P 500 officially entering correction territory. For certain cryptocurrencies such as Shiba Inu (SHIB -3.35%) that have been selling off for some time, it's a full-on bear market.
As of 11 a.m. ET, Shiba Inu dropped 9.8%, pushing this token to 15th place in terms of market capitalization in the cryptocurrency world. This move also officially pushed Shiba Inu's losses from its recent peak to more than 75%, a rather incredible drop in the span of approximately three months.
Image source: Getty Images.
Various meme tokens including Shiba Inu did bounce back Sunday, though this buying pressure was short-lived. Today, investors returned to the markets to see a sea of red, and appear to be selling anything remotely speculative or high-risk. Meme tokens such as Shiba Inu appear to be viewed as high-correlation assets to risky equities, and are selling off on concerns over interest rate hikes.
So what
Interestingly, bond yields have come down slightly from last week's surge, with the 10-year U.S. Treasury yield falling to 1.72% as of 11 a.m. ET. That said, the recent rotation we've seen in the market into ultra-defensive assets and out of anything even remotely sensitive to interest rates has driven the valuations of various high-growth assets such as cryptocurrencies lower.
One of the key investment theses behind crypto has been that this asset class is generally less correlated to macroeconomic catalysts that might move the stock market. However, we've seen high levels of correlation across stocks (particularly high-growth tech stocks) and cryptocurrencies recently. This correlation has been amplified in meme tokens, which have generally seen more volatile moves than other tokens due to their speculative nature.
Now what
Sometimes, all investors need is a reason to sell for some serious downside momentum to build. In the crypto world, this appears to be the case, with speculative tokens among the biggest losers in this period of panic selling we've seen in recent days.
I'm of the view that until we see some sort of meaningful positive catalyst materialize, there's little to stop this momentum from continuing for some time. For those holding Shiba Inu or other highly speculative tokens, this could be a very dangerous time to be a short-term trader or speculator.
For longer-term investors blessed with a high risk tolerance and nothing to lose, perhaps this is a buy-the-dip opportunity. However, the price action in the market today suggests most investors are concerned with capital preservation over adding risk.
