2 reasons why Bitcoin is down today

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What happened

As the world’s largest cryptocurrency by market cap, and still the most influential token in the crypto market, Bitcoin (CRYPTO: BTC) continues to garner huge attention. The direction that this token takes on any given day often sets the tone for the overall market. This seems to be the case today.

As of noon ET, Bitcoin has fallen 1.5% in the past 24 hours. The move coincided with an overall market decline of 2.7% over the same period. While Bitcoin has seen smaller declines than most higher risk altcoins today, investors seem to be pointing the finger at transaction volumes and a relatively high concentration of Bitcoin held by a few individuals as reasons to be cautious. today.

Image source: Getty Images.

So what

Volume is an interesting metric to watch, both in the crypto market and in the stock market. Investors and traders tend to want to know what is driving different moves, and volume can provide insight into the short-term price action of a given asset. In the case of Bitcoin, various significant sales over the past few years have been linked to mass selling. The good news: We haven’t seen a significant volume spike to coincide with a major drop this year. However, if volumes increase and that selloff continues, a momentum-driven downward movement could prompt more selling than Bitcoin bulls would like.

Plus, a report from the National Bureau of Economic Research has some investors on edge today. This report suggests that a very small fraction (0.01%) of all Bitcoin holders control 27% of the supply of this leading cryptocurrency. Concentrated ownership of any asset increases risk for those with smaller stakes. In the case of crypto, these risks are magnified because it is impossible to know for sure who owns these tokens and what their intentions are with regards to holding these tokens for the long term.

Now what

It should be noted that Bitcoin is still on the significant rise since the start of the year. This token is up around 60% year-to-date, outperforming stock market returns and providing investors with a tangible diversification thesis for owning this token.

That said, it is clear that investors of all stripes today are looking to reduce the risk of their portfolios. Given the inherent volatility that has materialized with Bitcoin over the past decade, investors may look to reduce their exposure to high-risk assets and focus on adding heavier exposure to assets. more defensive.

Today’s report on the relatively high concentration of Bitcoin ownership, along with various volume concerns, appear to have investors on edge. Perhaps these concerns will dissipate in the long term as Bitcoin’s investor base expands and the crypto market continues to mature. However, in the short term, it looks like more volatility could be on the horizon for Bitcoin and other tokens as well.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are 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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