What happened
Today, volatility has once again reared its ugly head in the crypto world. For investors in top cryptocurrencies such as Avalanche (AVAX 0.82%), Terra (LUNC 2.80%), Polygon (MATIC 0.08%), and Algorand (ALGO 0.78%), this has meant plenty of near-term pain.
As of 1 p.m. ET, these top tokens sunk 9.5%, 3.7%, 11%, and 7.5%, respectively, over the past 24 hours. Aside from Terra, which is down 18% over the past week (an outperformer, if one can believe it), the other three tokens on this list have now declined more than 35% over the past seven days.
This past week saw a number of macro and token-specific headwinds materialize for these tokens. From a macro perspective, expectations of rate hikes during the March meeting of the Federal Reserve have driven bond yields higher, reducing appetite for high-risk investments. Crypto has sold off alongside higher-beta stocks and speculative assets. Further regulatory scrutiny of the crypto sector, this time out of Russia, also has crypto investors on edge right now.
Image source: Getty Images.
So what
Terra's highflier status in recent months has insulated this token somewhat from the declines in the market of late. Investors seem to like the algorithmic stablecoin play, gravitating toward ecosystems that are generally viewed as more stable right now.
Proof-of-stake platforms Avalanche and Algorand have grown quickly as potential Ethereum competitors, but have sold off in similar fashion to Ethereum, reflecting bearish sentiment among decentralized finance growth tokens. For Polygon, a Layer 2 scaling solution for Ethereum, the thesis has been similar, with these tokens falling in proportion to each other in recent days.
Now what
This market-based decline in the crypto world is certainly a nasty one. This week has been one to forget for investors, particularly those who stepped into the crypto game recently.
As many longer-term investors in the crypto space know, this volatility can be expected from time to time. However, the fact that market-related forces are driving this move is something investors should consider. Cryptocurrencies have generally been viewed as low-correlation assets, relatively immune to market forces that may take the market down but spare the crypto sector. Of late, it appears this thesis isn't holding true, with stocks and cryptos trading in shockingly high correlation.
When will this market crash fizzle out? Time will tell. For now, investors should buckle in for a bumpy ride -- the volatility only appears to be accelerating right now.
