Leading privacy token Monero (XMR +0.20%) is one I think represents the sort of fear that's been building up among some investors in the crypto sector this past week. After surging to a new all-time high on Tuesday, Monero has given up those gains, and then some. Now trading 25.6% lower over the past week, as of Sunday at 4:30 p.m. ET, the tightening of regulations in the cryptocurrency sector (and the corresponding benefits these increased regulations could have on privacy coin demand) haven't been enough to offset broader market weakness and a number of macro trends at play.
CRYPTO: XMR
Key Data Points
Let's dive into what is driving the narrative around Monero right now and why investors are pulling back on a token that has otherwise seen incredible upside momentum in recent months.
Liquidation data pointing in the wrong direction
Source: Getty Images.
One of the key factors at play with Monero's recent decline (and again, I'd encourage investors to zoom out on the chart above) is mainly tied to the technical fundamentals that underpin most assets in the crypto sector. Given the amount of leverage used to trade top tokens such as Monero, liquidation activity among perpetual futures contracts and other derivatives traders use to bet on short-term price movements has an outsize effect on price swings. That's because many of these contracts are designed to provide massive payouts if an expected return over a given period materializes, but can wipe out investors in short order if a token's price swings the wrong way.
More than $2 million of long bets (bullish bets on Monero appreciating) were wiped out over the past 24 hours on Sunday, with millions more liquidated over the course of the past week. This means that a host of investor accounts have effectively been wiped out, with said investors unlikely to put new capital to work in Monero (or the token that liquidated their accounts) at least in the near term.
In combination with significantly reduced open interest (signaling less notional value placed via these aforementioned derivatives products), Monero's investor base appears to be shrinking, at least for now.
We'll see if this trend reverses, but for now, Monero is one token I think investors who don't have a multi-year investing time horizon will want to carefully watch.
