Why crypto stocks have plunged today

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What happened

Shares of cryptocurrency stocks were squashed at the start of trading on Tuesday, as Bitcoin (CRYPTO: BTC) and other cryptocurrencies tumbled. Since the exchange closed on Monday, Bitcoin has fallen from $ 39,353 per coin to around $ 36,400 last night, dropping around 10% of its value. Bitcoin rallied slightly but is still trading at $ 37,727 at the time of writing.

Coinbase Global (NASDAQ: COIN) fell 6.7%, Canaan (NASDAQ: CAN) fell 12.9%, Bitfarms (NASDAQ: BITF) fell 14.4% and SOS Limited (NYSE: SOS) fell 14.1%. . As of 1:00 p.m. EDT, stocks were down 4.1%, 12.6%, 13.9% and 13.2% respectively.

As a perspective, the price of Bitcoin is still up over 20% from a week ago when the cryptocurrency was trading below $ 30,000, so the day is bad but the weekly trend is quite strong.

Image source: Getty Images.

So what

The week has been volatile for Bitcoin, prompted by reports that Amazon (NASDAQ: AMZN) would accept the coin as payment for goods – but the company later rejected that information. Bitcoin rebounded over $ 40,000 on initial reports, but hit those highs today. Amazon has not said that it will never accept Bitcoin, but that the move is not imminent.

There continues to be a lot of turmoil and speculation around Bitcoin miners, in particular, which were primarily located in China. As China has cracked down on various industries, like crypto, the market is reacting strongly to any bad news.

Overall, cryptocurrencies continue to be volatile, depending on what the big names are saying and doing. Over the past week, Cathie Wood of Ark Investment Management, Elon Musk and Jack Dorsey of Square made positive comments on Bitcoin, which has been spurred by speculation from Amazon. But with Amazon saying it won’t be accepting Bitcoin anytime soon, momentum has stopped, not only for Bitcoin, but also for exchanges and miners.

Now what

The short-term news today looks negative, but there has been no fundamental change in Bitcoin’s underlying thesis. More and more companies are looking to accept it as a form of payment, and over time this could help the price of crypto and associated businesses.

What investors need to remember is that cryptocurrency is inherently volatile, and that’s exactly what we’re seeing today. In the cypto mining industry, in particular, stocks are likely to exaggerate the movement of Bitcoin itself, as will other commodities miners.

Over the next few weeks, we’ll see what the fundamentals look like for some of these crypto companies. Mining has seen strong growth but struggled to make a profit, which investors hope will improve. Coinbase will want to show that it can continue to grow profitably to keep its high valuation.

I remain skeptical of long-term Bitcoin trends, but more bullish investors should view this week’s volatility as perfectly normal. Even the best growth stocks don’t go up in a straight line, and neither does Bitcoin.

This article represents the opinion of the writer, who may disagree with the official recommendation position of a premium Motley Fool consulting service. Were motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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