What happened
Today's rather bumpy price action in the stock market is reverberating through cryptocurrencies once again. As of noon ET, Ethereum (ETH 0.58%), Dogecoin (DOGE 1.01%), and Solana (SOL 0.90%) declined 1.8%, 1.6% and 3.6%, respectively, over the past 24 hours.
CRYPTO: ETH
Key Data Points
CRYPTO: DOGE
Key Data Points
CRYPTO: SOL
Key Data Points
Today's price action appears to be driven by increased concerns around higher interest rates, as shorter-dated bond yields hover around levels not seen since 2007, which was prior to the Great Recession. For these major cryptocurrencies, which have continued to trade in historically high correlation to equities, the pain is being felt across the sector. Additionally, record-high levels of open interest leverage have exacerbated the volatility with which cryptos move relative to equities.
So what
Ethereum, Dogecoin, and Solana are among the most-traded cryptos and continue to garner significant attention from investors looking for signals of where the overall crypto market could be headed. Ethereum, the world's second-largest cryptocurrency, has seen meaningful volatility over the past month, as investors price in the network's upcoming The Merge, which will result in Ethereum shifting to a more energy-efficient proof-of-stake blockchain network.
Notably, Ethereum has recently seen its perpetual futures open interest hit an all-time high ahead of this big catalyst. Investors looking to put on leveraged derivatives trades are doing so en masse, increasing the likelihood of forced liquidations, which can create more volatility in the short term. While Dogecoin and Solana see significant interest from derivatives traders, Ethereum's massive volume is indicative of this token's status in the crypto market.
Now what
Crypto has historically been a more speculative asset class than equities, though driven by many of the same macro forces. Higher interest rates provide a headwind that will likely continue to affect both asset classes moving forward.
That said, the prevalence of leverage in the crypto market could accelerate moves higher or lower in the near term. Thus, investors concerned about short-term volatility may be sitting this ride out. That's fair, considering the moves we've seen this year.
However, long-term investors may look at these outsized moves as potential buying opportunities, should one consider a bottoming process at some point soon. While it may be too soon to tell when the crypto market will start to turn higher, these levels are becoming increasingly enticing for those with a long investing time horizon.
