What happened
In times of market turmoil, investors look for relative winners and losers. Today, three top tokens have underperformed the dismal showing of the overall crypto market, which has dropped 5.7% over the past 24 hours as of 2:15 p.m. ET.
Over the same time frame, Uniswap (CRYPTO:UNI) traded 10.1% lower, Monero (CRYPTO:XMR) lost 7.5%, and Algorand (CRYPTO:ALGO) sank 7.2%.
The outsized moves among these top alt coins have been driven, interestingly, by concerns about the potential for rate hikes as soon as March. A faster-than-anticipated reduction of accommodative monetary policy has many investors concerned that high-risk, high-upside assets such as cryptocurrencies may fail to see the same kinds of capital inflows as in years prior.
Image source: Getty Images.
So what
Uniswap, Monero, and Algorand are very different blockchain networks. Uniswap is among the largest decentralized exchanges in the world. Monero is a top privacy token. And Algorand is a top proof-of-stake network many see as a competitor to Ethereum and other application-focused smart contract-enabled networks.
The three tokens represent networks with immense growth potential. Indeed, 2021 showed just how powerful these networks can be in terms of returns, in a risk-on environment.
However, investors are clearly taking a risk-off approach to the market right now. Should interest rates rise faster than expected, the valuations of most high-flying assets could be due for a reset. Cryptocurrencies, assets some have called “low correlation” assets relative to equities, are actually acting much in line with what we’re seeing across tech stocks and other growth sectors today.
Now what
Uniswap, Monero, and Algorand represent networks with incredible growth potential. That said, that growth potential must be discounted to a net present value according to some discount rate. As interest rates rise, so too does the discount rate investors use to value future cash flows (or in the case of cryptocurrencies, network value). As digital currencies are already difficult to value, investors appear to be taking the view that these top tokens may be too risky to consider right now.
Fair enough.
The current sentiment in the crypto world is certainly far from bullish. Those taking a near-term view of the crypto market may feel inclined to steer clear.
However, those taking a longer view of the innovative growth potential of these blockchain networks may look at this dip as a buying opportunity. It’s unclear if and when momentum will turn around again in the crypto space. However, these three tokens are worth watching. They are all near the top of my watch list right now.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.