What happened
The cryptocurrency market started dropping on Friday but the sell-off hit a peak early on Saturday as investors try to digest a number of macro news items that could impact all markets around the world. The most pressing concern is rising tension between Russia and Ukraine and the Federal Reserve potentially calling an emergency meeting for Monday.
As of 1:40 p.m. ET, Bitcoin (CRYPTO:BTC) was down 1.1% in the last 24 hours but had fallen as much as 3.4% earlier in the day. Ethereum (CRYPTO:ETH) was down 3.5% but fell as much as 6.7% in 24 hours, with a 13% gap from its Thursday peak to its Saturday low. Dogecoin (CRYPTO:DOGE) is down 3.4% in the last 24 hours, but like Ethereum was down 17% from its peak earlier in the week to the lows of this morning.
Image source: Getty Images.
So what
The biggest concern for crypto investors and the stock market late on Friday was increasing tensions between Russia, Ukraine, and U.S. President Biden urged Americans to leave Ukraine immediately, saying that an invasion could happen at any time. Russia has been placing troops near the border and the concern is that an invitation will lead to a broader conflict with the U.S. and Europe. Any uncertainty around the situation will cause investors to sell risky assets, like cryptocurrencies and stocks, which is a big reason the market is down right now.
On the policy front, the Federal Reserve has an emergency meeting on Monday to discuss interest rates following a 40-year high inflation rate of 7.5% reported last week. Based on the market’s reaction, investors are expecting a short-term rate hike as early as Monday in order contain inflation. Higher rates would make lower-risk assets like bonds more attractive for investors, potentially pushing money out of higher-risk assets like cryptocurrencies.
Higher rates certainly aren’t a surprise in 2022, but investors may have thought increases were coming later in the year. Now, it seems like the Federal Reserve will be pushing up that timeframe before inflation gets out of control.
Now what
The crypto crash over the last day and a half has been more of a macro market move rather than anything to be concerned about for Bitcoin, Ethereum, or Dogecoin specifically. But as they are highly volatile assets, it’s not surprising that these digital coins magnified the stock market’s move lower on Friday.
I wouldn’t be surprised to see volatility continue over the next few weeks as well as investors digest inflation, earnings, and interest rate information. In the crypto market, investors should continue to watch utilities like payment systems and NFTs as signs of growth for the industry long-term. That’s where the future is for cryptocurrency and days like today could be buying opportunities for long-term investors.
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.