Why are cryptos down today? That is likely a top question investors have on Friday, as cryptocurrency prices collapse. Bitcoin (CCC:BTC-USD) is down more than 8% and Ethereum (CCC:ETH-USD) prices are down 10%.
The leading cryptocurrencies by market capitalization are not alone. Other cryptocurrencies including Dogecoin (CCC:DOGE-USD), Solana (CCC:SOL-USD) and Cardano (CCC:ADA-USD) are also in the red. While some experts had initially been calling for a rally into the weekend, it seems the opposite is happening.
So why are cryptos down today? This decline comes as investors react to news of a new Covid-19 variant emerging in South Africa. CoinDesk has therefore attributed today’s move to a decline in risk appetite.
Why Are Cryptos Down Today?
The shortened trading session after the Thanksgiving holiday is seeing markets around the world selling off. As we reported earlier, other big losers include airline stocks and other travel-related equities. This comes following the discovery of a new Covid-19 variant in South Africa and Israel. In addition to broad recovery fears, investors are also worried about new lockdowns and travel restrictions.
Cryptocurrencies, it seems, are getting caught up in this downturn. Bitcoin had been trading above $67,000 as recently as Nov. 8. It is now down 20% from its recent peak.
This puts Bitcoin in bear market territory, which is defined as a decline of 20%-plus from recent highs.
Why It Matters
Even before today’s selloff, cryptocurrencies have been one of the most volatile asset classes throughout this year. At various times in 2021, Bitcoin traded above $65,000 and below $30,000. Also, many influential people on Wall Street remain divided on whether cryptocurrencies have any intrinsic value and purpose. Crypto bulls have recently been advocating for Bitcoin as a hedge against inflation. Bears say that this space is simply too risky to invest in.
The selloff today then is likely to exacerbate the ongoing debate around their value and usefulness, as well as intensify the volatility of cryptocurrency prices. How steep the price decline gets will be known in coming days and weeks.
However, it is worth noting that Bitcoin, Ethereum and other digital assets have seen big price drops before. Between April and July of this year, the price of Bitcoin fell significantly before recovering and going on to test new all-time highs earlier this month. Long-term cryptocurrency bulls who have weathered past storms may be unfazed by today’s decline. However, more speculative investors appear to be getting spooked.
What’s Next for Crypto
Today’s market selloff appears to be accelerating and cryptocurrencies are getting dragged down with stocks. It will be interesting to see if the selloff continues next week or if the drop is a one-day event.
Key to the outcome will be what the World Health Organization says about the latest mutation of Covid-19 and how difficult it will be to contain as winter descends. But clearly, investors’ appetite for risk, both with stocks and cryptocurrencies, is being tested.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.