The crypto market has been dropping like a rock for a few days now and the stock market’s open on Monday morning didn’t help anything. Selling continued and cryptocurrencies seem to simply move with the most volatile stocks on the market.
Some of the notable moves today were Cardano (ADA -0.38%) falling 10.8% in the last 24 hours as of 12:20 p.m. ET and Polkadot (DOT -3.53%) dropping 14.7%. Chainlink (LINK -6.34%) is down 10%, and Cronos (CRO -4.67%) has fallen 12.2%. In the last week, these cryptocurrencies are down 14.7%, 22.7%, 18.5%, and 19.83% respectively.
The market overall is down big today with the Nasdaq Composite off 3.1% and the S&P 500 down 2.3% as of this writing. It’s not unusual for cryptocurrencies to magnify those losses on a short-term basis.
Another reason I think cryptocurrencies are falling is some of the long-term theses behind them are being undermined. Cryptocurrencies haven’t been a very good hedge against inflation and they have traded more in line with risky tech stocks than anything else.
As investors sell risky assets and flee to what they feel are safer assets, crypto has sold off dramatically. And this comes at a tough time as blockchain developers are just now starting to get operational momentum behind decentralized finance, non-fungible tokens, and other crypto projects. But given how young the industry is it’s easy to see why it’s selling off.
I think today’s selling is another example of why investors need to look for the long-term use case for cryptocurrencies before jumping in. If developers of the blockchain itself aren’t able to attract decentralized app developers and users, then there’s little value to be added outside of being an inflation hedge, an argument that hasn’t held up well over the last year.
With that said, that’s exactly what Cardano, Polkadot, Chainlink, and Cronos are trying to do. They’re building an ecosystem that has real utility in the digital and real worlds. But they’re also not the industry leaders, so they’re playing catch-up a bit with larger cryptocurrencies.
As bullish as I am on crypto long-term, in the short term the market can be extremely volatile. That will likely continue, but for those blockchains that develop over time this could be a good discount in value. That’s why investors should look for the top cryptocurrencies with the biggest development communities and build a diversified portfolio. This is still a nascent market and should be treated that way given high risks going forward. It isn’t likely hundreds of cryptocurrencies will win long-term, but the ones that do could be transformational for investors and the world.