What happened
The crypto market sell-off continues on Tuesday as investors continue to see more risk in tokens. Bitcoin and Ethereum are facing pressure from their own internal problems like higher fees and transaction congestion. But the macro environment hasn't helped either.
On the altcoin side of the market, Fantom (CRYPTO: FTM) is down 15.4% in the last 24 hours as of 2 p.m. ET, Filecoin (CRYPTO: FIL) has dropped 13.1%, and Internet Computer (CRYPTO: ICP) is down 12.2% in that time.
So what
The last few days have seen Bitcoin transfers cut off twice at Binance and transaction fees soar. That's caused a lot of investors to question whether there is an unknown risk at the exchange or whether we're seeing flaws in Bitcoin's scalability given the market congestion.
The vast majority of crypto wealth is held in Bitcoin and Ethereum, so it's no surprise that when Bitcoin and Ethereum drop the rest of the market goes with them. As more volatile assets, it's also not surprising when these tokens magnify the drop in major cryptocurrencies.
The tie to Ethereum specifically can't be overlooked for these tokens specifically. While Fantom aims to be a bridge to Ethereum, using the same coding language, Filecoin and Internet Computer are built to store data on the blockchain. These are like niche utilities, so if the bigger cryptocurrencies are falling, then it's likely that few use cases will make their way to these altcoins.
It hasn't helped that investors are taking risks off the table ahead of any debt ceiling crisis in the U.S. and a growing banking crisis. This is ironic because cryptocurrency is supposed to be a safer asset in a world where government-issued currencies continue to inflate and present significant risks for investors. But the reality is that crypto trades a lot like a growth stock and it's no surprise that a flight to quality today has left crypto out in the cold.
Now what
Today is one of those trading days where fear starts in one corner of the crypto market (Bitcoin) and spreads far and wide. Altcoins are feeling the brunt of the sell-off and that may continue for a while.
What I think the crypto industry needs to answer is the questions raised by the last week. High costs during times of congestion are counter to crypto being more widely adopted around the globe. It's going to be impossible to onboard another million people at this rate, much less the billion people that many crypto bulls would like to see in the industry.
These flaws are what will keep me from buying tokens that aren't inherently built for thousands of transactions per second and cost under a penny. I don't see high costs scaling and it's clear that even well-known cryptocurrencies aren't a hedge against inflation or banking problems, so some of the reasons to buy on a day like today are being undermined.
