What happened
The price of Polkadot (DOT -5.55%) was tumbling Monday as cryptocurrency investors continued to process the news about the ongoing conflict between Russia and Ukraine, as well as concerns about inflation and potential interest rate hikes.
As of 10 a.m., the price of Polkadot had fallen by 3.5% over the prior 24 hours.
So what
Russia's invasion of Ukraine has sent both the stock market and cryptocurrency market spiraling as investors attempt to assess how a prolonged conflict and financial sanctions against Russia could impact economies around the world.
Image source: Getty Images.
Crypto investors are also likely growing increasingly concerned with the fact that the inflation rate in the U.S. has reached a 40-year high.
Cryptocurrency investing surged during the height of the pandemic, but some of the euphoria has worn off, and in recent months, investors have started pulling money out of highly speculative investments in search of more stable assets.
Many token prices tend to move in sympathy with the price of Bitcoin, which has fallen by 35% over the past several months. Polkadot's price has tumbled by 55% in the past three months.
Crypto investors are also keeping a close eye on the Federal Reserve, which could begin raising the benchmark fed funds interest rate from its current extremely low level as soon as March. Higher interest rates can put a damper on consumer spending and reduce the relative value of companies' future earnings, both of which can lead investors to take a generally less optimistic view of speculative investments.
Now what
With inflation running hotter than usual in countries around the world, U.S. inflation at the highest level it has been at in decades, interest rate hikes on the horizon, and a conflict in Ukraine, investors can likely expect a lot more volatility in the cryptocurrency market.
That doesn't mean that Polkadot won't make a good long-term investment, but it does mean that investors should recognize that they'll need to endure more price instability in the months ahead.
