What happened
The price of many altcoins rose nicely as the broader crypto market rallied over the weekend and into Monday, after what has been a difficult few months of trading.
The price of Cardano (ADA 5.57%) is trading nearly 7% higher over the last 24 hours as of 11:55 a.m. EST, while the price of Polygon (MATIC +0.00%) and Kadena (KDA 5.71%) traded nearly 14% and roughly 25% higher, respectively.
So what
Like many sectors in the stock market, the crypto market has struggled since November. This is partly because of the Federal Reserve's abrupt change from loose monetary policy that involved low interest rates and quantitative easing to an outlook that involves much tighter policy.
The Fed looks poised to end quantitative easing, which effectively pumps money into markets, and begin raising its overnight benchmark lending rate, the federal funds rate, at its March meeting. The Fed is expected to raise the federal funds rate as much as three or four times in total before 2022 ends. Then the Fed may consider shrinking its multitrillion dollar balance sheet, which has been elevated since the Great Recession. This would effectively be the opposite of quantitative easing in that it would remove liquidity from the market.
Image source: Getty Images.
Tech and growth stocks are getting hammered by the Fed's new outlook, and the crypto market has followed suit, with Bitcoin at one point falling nearly 50% from its highs in October. Investors are likely concerned that the excess liquidity helped pump the crypto markets and now won't be there to sustain the high prices and returns that have been achieved.
Cardano, which is seen as a big competitor to Ethereum with its smart-contract functionality and ability to process more transactions per second, has seen its price drop nearly 60% from its high in September. Polygon, which helps blockchains like Ethereum ease congestion on their networks, is down nearly 33% since the end of December. And Kadena, which makes sharing data across different blockchains and developing decentralized applications easier, has fallen from more than $24 in November to less than $8 now, which may explain its higher rise today than most of the market.
Now what
Most of the thousands of available cryptocurrencies seem to move together and are heavily influenced by the movement of Bitcoin and Ethereum.
The market seems concerned that the prices of these two main cryptocurrencies have risen too fast, considering that Bitcoin still has a long way to go before it's adopted as a medium of exchange and for other use cases beyond investment. However, the steep drop in prices is likely presenting an opportunity for bulls or those who missed the initial opportunity to enter the market.
While it can be hard to determine near-term price movements for cryptocurrencies, the one thing I can say about Cardano, Polygon, and Kadena is that they all have real practicality. All three seek to solve issues such as scalability, security, and efficiency that make it difficult for blockchain networks to gain mass adoption.
While it's competitive out there, with all three of these blockchains essentially trying to improve on issues that Ethereum faces in terms of congestion and gas fees, all three of these networks and therefore tokens have potential, which makes this dip a potential buying opportunity.
But it's hard to picture a world where all of these blockchains seeking to address similar problems really succeed, so before investing you really need to study what sets each apart and what makes each one replaceable. Continued volatility is a foregone conclusion at this point, so really try to pick cryptocurrencies that are built to last.
