What happened

Today's turned out to be yet another abysmal day for top cryptocurrencies. Cardano (ADA 4.64%) XRP (XRP 2.35%), and Solana (SOL 3.03%) are top-10 tokens that are getting pummeled. At of 12:45 p.m. ET, these three tokens have sunk 11.5%, 9.4%, and 13.4%, respectively, over the past 24 hours.

The violent swing downward the crypto market has made in recent weeks follows high selling pressure across other risk assets, such as equities. With the correlation between equities and crypto increasing, likely due to a reversion of the same macro forces that took risk assets higher in recent years, a stampede is heading toward the exits now. Cryptocurrencies such as Cardano, XRP, and Solana provide higher-risk upside, something investors aren't looking for right now.

Chart heading lower, breaking through the floor.

Image source: Getty Images.

Adding to the concern of crypto investors is the recent annihilation of algorithmic stablecoin ecosystem Terra. Over the past week, Luna, the token on the Terra blockchain, has gone from around $80 per token to approximately $0.01 at the time of writing. This is due in large part to the move of Terra's stablecoin, TerraUSD, off its peg. Right now, UST is trading below $0.40 per token (stable coins are supposed to be pegged to the $1 level).

So what

Mass contagion appears to be a tail risk many investors didn't really factor into their valuation models (if they had any) in the crypto world. With stablecoins (algorithmic and otherwise) increasingly seeing instability, this poses a real existential threat to the crypto sector as a whole.

That's because stablecoins power payments in the crypto space, and are often used as the exchange rate for various trading pairs and the all-important crypto derivatives market. Investors face a choice of whether to stick it out and average down on position, or take losses and move on. Right now, it appears the latter is the focus of most investors in this market.

Now what

Cardano, XRP, and Solana are each down well more than 75% from their 52-week highs. This is a bloodbath, and the idea of minting fresh all-time highs seems to be a fairytale in this environment. In other words, investors can't see the bottom. And when this happens, panic is what can drive valuations of any risk asset to levels many didn't think was possible, especially in such short order.

For those bullish on the future of the crypto sector, and who believe Cardano, XRP, and Solana each provide unique utility for a digital future, perhaps these are the sorts of discounts worth considering. After all, previous crashes in the crypto sector were resolved.

However, it's clear risk appetite isn't anywhere near where it used to be. With the markets so cautious, it's hard to be a buyer, even at these depressed valuations. Accordingly, until there's some sort of catalyst for investors to latch on to, I think volatility is likely to remain mostly to the downside, at least in the near term.