Why Bitcoin, Ethereum and Dogecoin are falling today

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What happened

The cryptocurrency market is hit with more selling today. Most of the top 100 tokens saw valuation slides, and Bitcoin (CRYPTO:BTC), Ethereum’s ether token (CRYPTO:ETH), and Dogecoin (CRYPTO:DOGE) fell around 0.8 %, 2.9% and 2.5%, respectively, over the last 24-hour period as of 5 p.m. ET Thursday.

Growing downside pressures are gripping the market and investors have generally become more risk averse lately. Federal Reserve Chairman Jerome Powell made comments yesterday indicating that the central bank will soon raise interest rates, and it looks like this increase could be one of many. Uncertainty continues to shape valuations in the crypto space.

Image source: Getty Images.

So what

While many top tokens are backed by decentralized ownership and governance structures, it is clear that the cryptocurrency market does not exist in a valuation vacuum. Against the backdrop of aggressive stimulus spending initiatives and basement-level interest rates, cryptocurrency valuations have made big gains over the past few years. However, the market is hit by volatile selling following some recent changes.

Yesterday’s comments from Powell point to higher interest rates over the next two months and further increases later in the year. Rising rates and scaling back stimulus initiatives signal a less favorable backdrop for high-risk growth investments, and the change comes at a time when regulatory pressures could also increase.

The Biden administration is reportedly considering an executive order introducing new cryptocurrency regulations that could be rolled out as early as February, and China, India and Russia are among other countries reporting tougher stances. on digital tokens. If that’s not enough negative valuation catalyst for you, the crypto market has also been impacted by disappointing performance updates from growth-dependent companies including Peloton, Netflix and Tesla.

Now what

Even after recent selloffs, Bitcoin, Ethereum, and Dogecoin have all managed to post substantial gains over the past year of trading.

Bitcoin Price Data by YCharts

However, the gains also exist against the backdrop of some dramatic volatility. When it comes to the two most valuable cryptocurrencies on the market, Bitcoin is now trading around 48% off its peak, while Ethereum’s ether token is down 51.5% from its peak. relative to its peak.

Dogecoin’s valuation chasm is even more staggering. The popular dog-themed token has risen 1,830% over the past year of trading, but it has also fallen 81% from its peak last May.

As the macro backdrop evolves, major cryptocurrencies have been feeling the pressure lately, and the pressures may continue in the near term. The cryptocurrency market has been highly volatile in its relatively short history, and investors will need to weigh the potential for explosive returns against the possibility that a more pronounced bear cycle could drive down token valuations.

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Keith Noonan has no position in the stocks mentioned. The Motley Fool owns and recommends Bitcoin, Ethereum, Tesla and Twitter. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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