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Why Megacap Cryptocurrencies Bitcoin, Ethereum, and Binance Coin Are Plunging Today

The Motley Fool
The Motley Fool
 2022-01-21

What happened

The three top-ranked cryptocurrencies (excluding stablecoins) in terms of market capitalization are Bitcoin (CRYPTO: BTC) , Ethereum (CRYPTO: ETH) , and Binance Coin (CRYPTO: BNB) . When these three tokens are on the move, particularly in the same direction, the entire market tends to follow. Today, they're all seeing double-digit declines over the past 24 hours, down 10.2%, 12.6%, and 10.1%, respectively, as of 11:30 a.m. ET.

The entire crypto market is under siege, mainly from macro drivers such as rising U.S. Treasury yields. Anticipation that additional interest rate hikes are on the horizon is driving down valuations across most risk assets. Recently, higher correlation between cryptocurrencies and high-growth tech stocks has resulted in a mass capital rotation out of these sectors.

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Image source: Getty Images.

Reportedly, forced liquidations in the crypto world topped $600 million over the past 12 hours. Bitcoin and Ethereum made up more than half of these total liquidations.

Additionally, market sentiment appears to be entering extreme bearish territory. Assets that have benefited from bullish sentiment over the past year are reverting toward their longer-term mean. How long this reversion will take remains to be seen.

So what

There's a lot to unpack with today's price action in the crypto world. Indeed, seeing the world's three largest cryptocurrencies decline in double-digit fashion is not something investors see every day. Right now, sentiment is extremely ugly in the crypto world, and investors appear to be looking for safe places to hide.

The thing is, Bitcoin and Ethereum have, for the most part, been among the "safe haven" assets many crypto investors have looked to. Forced liquidations and capital outflows from cryptocurrencies appear to be more significant to investors than the hedge-like attributes of these top tokens right now.

Now what

Crypto investors, and equity investors for that matter, can't control the macro narrative. Right now, investors are panicking, evidenced by these incredible declines among top cryptocurrencies today. So far, 2022 is shaping up to be a rather volatile one (to say the least) for the entire crypto market. The fact that these three top tokens are acting more akin to smaller-cap tokens is not a good sign for those bearish on the near-term outlook for the crypto sector.

That said, longer-term investors may look at these declines as buying opportunities. The best time to pick up shares or tokens of the companies or cryptos one likes is when there's blood in the streets. Finding an exact bottom is impossible, and there may indeed be more downside from here. Accordingly, investors ought to trade carefully in this environment, bullish or not.

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Chris MacDonald owns Ethereum. The Motley Fool owns and recommends Bitcoin and Ethereum. The Motley Fool has a disclosure policy .

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