What happened
After a rough weekend, the trading week didn't start off well, with most cryptocurrencies dropping early in trading on Tuesday. Macro tensions with Russia continue to be a hot topic, as are the freezing of financial accounts in Canada.
Solana (SOL 0.40%) fell as much as 6.6% in the past 24 hours, Ethereum (ETH -0.78%) dropped up to 4.9%, and Chainlink (LINK -0.27%) was down as much as 7.2%. Values hit their lows around midnight overnight and have been clawing back ever since.
Image source: Getty Images.
So what
Russia's seemingly imminent advance into parts of Ukraine continues to weigh on markets and can cause what's known as a risk-off trade. This is where investors sell riskier assets for what are deemed safer investments.
More concerning is that regulators appear to be going after major cryptocurrency companies in Canada and have been freezing crypto wallets associated with the truck protests in Ottawa. The Ontario Securities Commission reportedly informed police about tweets sent by Kraken's Jesse Powell and Coinbase's Brian Armstrong.
The Royal Canadian Mounted Police have asked for cryptocurrency accounts related to the protests to be frozen, something the companies have reportedly done. But this also flies in the face of the decentralized nature of cryptocurrency, which is a huge selling point for the industry.
As cryptocurrency goes more mainstream, companies will also have to learn how to deal with regulations. Canada's current state of emergency shows just how difficult dealing with those traditional regulations could be.
Now what
As the market has fallen the past few months, cryptocurrency values have gone down at the same time. What's got to be a concern long term is that there could be a sustained downturn in the market as interest rates rise and quantitative easing by the Federal Reserve ends. If investors peel to safer assets, that's not good for cryptocurrency values.
While I think the long-term future of cryptocurrency is in building utility with new decentralized finance projects, tokens, and non-fungible tokens, it's also possible that values fall rapidly as traders exit the market. They drove values higher during the pandemic, and if the market turns, we could see values fall as quickly as they went up.
At the same time, regulators and governments around the world are grappling with what to do with cryptocurrencies long term. That could lead to more uncertainty, which is one reason the market is selling right now.
I'm still bullish on cryptocurrencies, but this sell-off could continue for a while if the market continues to fall and regulators introduce more uncertainty. Therefore, long-term investors should be ready to hold on for a wild ride.
