What happened
The weekend continues to be a rough time for cryptocurrency holders. The stock market closes on Saturday and Sunday, but digital assets trade 24 hours, 7 days a week and Saturday has repeatedly been a down day for the cryptocurrency market over the past month.
There were drops across the cryptocurrency industry today but a few were more notable than others. Ethereum (CRYPTO:ETH) continues its slide, falling 5.1% in the last 24 hours as of 4:20 p.m. ET. The value of Ethereum has fallen 17% in the past week and 31% over the past 30 days, hitting the dreaded $3,000 price in afternoon trading today before recovering slightly.
Cardano (CRYPTO:ADA) fell 5.5% over the last 24 hours, Shiba Inu (CRYPTO:SHIB) is down 5.9%, and Cosmos (CRYPTO:ATOM) is down 13.7%. These are all known as altcoins and are typically more volatile than their larger crypto rivals, but these are big drops no matter how you look at it.
So what
The sharp drop in cryptocurrency values started at about 11:00 a.m. ET and lasted for about two hours before stabilizing. Given the fact that it’s a weekend and there’s not a lot of news and cryptocurrencies were selling off across the board, this looks like a short-term trading phenomenon.
One factor to look at is the number of digital asset trading accounts being liquidated due to hitting margin limits, which is another way of saying an exchange forced a cryptocurrency holder to sell in order to make sure debts are paid off. According to Coinglass.com, $273 million of crypto accounts that they follow were liquidated over the last 24 hours. Surprisingly, $71.9 million of that was in Ethereum with just $53.6 million in Bitcoin (CRYPTO:BTC) even though Bitcoin has a much larger market cap. These forced sales may be why Ethereum dropped so much, and related cryptocurrencies that are also building utility followed suit.
Liquidation data can tell us a lot about the short-term moves of cryptocurrencies. For example, on December 2 and 3 of 2021, there were $636 million and $1.58 billion of long (a position that’s profitable if an asset’s price goes up) positions liquidated, causing the market to tumble. Today, only $211 million of positions have been liquidated so far, but in the last three days $1.24 billion of long positions have been liquidated, so there’s definitely downward pressure.
All investment markets are trying to work through confusing economic data right now as well. Omicron is sweeping across the world, potentially negatively impacting the economy. We are also seeing inflation and the Federal Reserve in the U.S. talking about raising rates in 2022, which could also slow the economy. These fears have hurt growth stocks recently and cryptocurrencies are generally correlated with growth stocks, so they’re falling as well.
Now what
Volatility is common in cryptocurrencies but for most of the last two years, the trend in prices was going up. Now, we’re seeing volatility work against investors and prices are falling quickly.
The drop may last for a while as speculators and leveraged traders are pushed out of the market. But there are hundreds of millions of dollars being invested in building real utility for cryptocurrencies whether that’s in finance, fashion, payments, or other areas, and long-term that’s why I’m bullish on the industry. That said, it’s going to be a bumpy ride and I’m prepared for prices to drop further before they get better.
