What happened
It's safe to say the cryptocurrency market is crashing today as the market sells almost every asset class on news of Russia invading Ukraine. The riskiest assets, like cryptocurrencies, have been among the hardest hit.
In the last 24 hours, Bitcoin (BTC +0.62%) has fallen as much as 11.2%, Ethereum (ETH +1.23%) fell 15%, Dogecoin (DOGE 0.24%) dropped 18.2%, and Shiba Inu (SHIB 0.26%) fell a whopping 20% at its low. The selling hit peak frenzy overnight and as equity markets open in the U.S. the values of cryptocurrencies have seemed to stabilize somewhat.
Image source: Getty Images.
So what
Russia began an invasion of Ukraine late on Wednesday and that caused investors to sell risky assets at a rapid clip. Since crypto markets are open 24 hours per day, the pain was felt there first, but stocks are down big today as well.
Cryptocurrencies have been correlated with the stock market for months now and they're typically more volatile than the market, meaning their moves are larger than the typical stock. We're seeing that today as investors flee from risky assets and buy assets deemed safer like utility stocks and oil. Right or wrong, that's the market's short-term reaction.
CRYPTO: BTC
Key Data Points
At the same time Russia is moving into Ukraine, we're also seeing Canada move forward with freezing cryptocurrency accounts associated with the truck protest. One of the arguments for cryptocurrency is its decentralized nature, which is being put to the test in Canada if the government can freeze accounts.
Now what
We are seeing more stress on the long-term viability of the crypto economy now than we have seen in a decade. Some countries are banning cryptocurrency, others are beginning to regulate it, and still others are trying to treat it like any normal financial asset in a centralized bank. Meanwhile, traditional investors in the stock market have moved into cryptocurrency, which brings with it some of the same market swings we see with stocks.
Days like this are a reminder to keep your focus on what's being built in the crypto economy. The cryptocurrencies that are successful long-term are likely to be those building the most utility, whether that's through a payment infrastructure, NFTs, or some other kind of value.
I also don't think a day like this is a reason to panic sell. There hasn't been any fundamental change in the economy or in cryptocurrencies themselves. And we don't know if the invasion of Ukraine will lead to any further conflict. So, while the market is currently fearful, that fear may not last.
There are starting to be some great values in the market and I'm seeing today's drop as a buying opportunity to pick up great assets at a discount. Long-term, the market will realize the underlying value in stocks and cryptocurrencies and investors who can take advantage of dislocations like this will be able the beat the market over time.
