What happened

The intense fighting picking up between Russia and the Ukraine has sent shockwaves through financial markets. This real-world conflict has led to mass selling across a range of sectors many investors may think shouldn't be affected, including metaverse-related tokens. However, as of 12:30 p.m. ET, Axie Infinity (AXS)Decentraland (MANA -7.51%), The Sandbox (SAND -4.08%), and Enjin Coin (ENJ 5.31%) have plummeted 14.3%, 12.9%, 12.2%, and 16.4%, respectively, over the past 24 hours.

So what

Notably, metaverse-related cryptos have been among the biggest winners from the fourth-quarter rally last year into anything metaverse related. This sharp increase in value has led to intense profit-taking by some investors worried about how capital flows may be disrupted by Russia's invasion of Ukraine. Indeed, this catalyst is likely to affect both equity and crypto markets further, as investors look to de-risk their portfolios.

Sentiment within the risk-on crypto sector remains on the "extreme fear" end of the spectrum, according to multifactorial market sentiment analysis for this sector. This gauge has been creeping lower in recent days, suggesting investors are more interested in minimizing risk than maximizing return. However, this gauge typically provides a good baseline for when the market is primed for buying opportunities, which may result in periodic rallies, should sentiment shift in the market in the coming weeks.

Ukraine and Russia flags with barbed wire in between.

Image source: Getty Images.

Now what

As highly volatile assets, cryptocurrencies carry an inherently higher level of risk relative to other investment opportunities. For metaverse tokens that have already appreciated in value so significantly in such a short period of time, it appears investors are keen to take profits or trim losses, on fears the market may take a long time to recover from this.

Right now, there's a tremendous amount of uncertainty shaking investor confidence in these tokens. Perhaps long-term investors can look at this turmoil as a buying opportunity. That said, there are likely many more investors who may take the perspective that more downside is likely on the horizon.