What happened

Cryptocurrencies struggled today as the industry continues to deal with the fallout of the FTX meltdown and assess broader contagion. Furthermore, investors are also still digesting the Federal Reserve's final meeting of the year earlier this week.

Since late yesterday afternoon, the price of the world's second-largest cryptocurrency, Ethereum (ETH -0.61%), traded 6.2% lower as of noon today. The price of Ethereum had fallen below $1,200.

The price of the meme tokens Dogecoin (DOGE -2.11%) and Shiba Inu (SHIB -1.49%) were down 6.4% and 4.6%, respectively.

Person looking at negative stock chart on tablet.

Image source: Getty Images.

So what

Since the large crypto exchange FTX filed for bankruptcy, investor sentiment has been very negative on crypto.

Not only has FTX's CEO Sam Bankman-Fried been arrested and facing charges of wire fraud, money laundering, and violating securities law, but the bankruptcy is spreading contagion across the industry. There were a lot of other companies doing business with FTX, and a lot of crypto investors are now losing faith in the industry as a whole.

Recently, Binance has faced troubles, first from customer withdrawals, and now it is trying to prove its solvency. It recently hired the Mazars Group to essentially audit its financials and create a "proof of reserves" report that shows it has the reserves to meet customer withdrawals.

But this morning, CNBC reported that Mazars has paused its work with crypto clients "due to concerns regarding the way these reports are understood by the public." The company did, however, release several of these "proof of reserves" reports for various crypto exchanges.

Sometimes, though, runs on exchanges can occur even if a firm is somewhat healthy. Once customers think that they could be at risk of losing their money, they are not going to chance it and will pull funds.

With sentiment so low, further runs on crypto exchanges are not out of the realm of possibility. These crypto exchanges are a key way retail traders have been buying and selling crypto, so if investors do not have faith in them, that is going to really hurt demand.

Earlier this week, the Fed also raised interest rates by a half-point after four consecutive 0.75 percentage point hikes, signaling a minor pivot. Still, the Fed's projection for where interest rates would end up in 2023 is inside a range of 5% and 5.25%, implying there are more rate hikes to come. This seemed to catch investors off guard, especially after promising data that showed inflation cooled in November.

Cryptocurrencies are riskier assets, which means they typically fare better in a lower-rate or falling-rate environment, so this recent news by Powell doesn't exactly support a risk-on environment.

Now what

I expect the crypto industry and many cryptocurrencies to remain volatile while the FTX proceedings are happening and as new revelations come to light. But the one thing I am largely encouraged by is that this major incident hasn't really changed my view on cryptocurrencies like Bitcoin and Ethereum. 

I think it showed that the industry is still full of fraudulent behavior that needs to be addressed if people are going to regain faith in legitimate cryptocurrencies.

I continue to like Ethereum and think it will be around long term, and I continue to have no interest in Dogecoin or Shiba Inu. These two cryptocurrencies were started essentially as a joke and don't possess any kind of fundamental value in my mind that would make them good crypto investments.