Why Bitcoin, Ethereum, and Dogecoin Are All Dipped Today

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What happened

The cryptocurrency market collapsed on Tuesday with major cryptocurrencies like Bitcoin (CRYPTO: BTC), Ethereum (CRYPTO: ETH), and Dogecoin (CRYPTO: DOGE) all high numbers down. A traditionally slow trading week could be to blame, so investors will want to watch for momentum once people get back to work in the New Year.

As of 2:05 p.m. ET, Bitcoin was down 8.1% in the past 24 hours and is currently down 7.4%. Ethereum had lost 8.3% of its value at one point and is now down 7.3%. Dogecoin is having the worst day of three days, and is down 9.7% at one point and is down 8.7% at the moment.

Image source: Getty Images.

So what

The vast crypto market is in decline today and none of these cryptocurrencies have been spared. Sometimes the week between Christmas and New Years can be slow for the market and cause wild swings. I think that’s at least partly responsible for today’s move, given the natural volatility of cryptocurrencies.

Cryptocurrency declines can also be exacerbated by rapid sales by investors having to liquidate positions. When a broker or stock exchange finds that someone in a leveraged position (bought in part with borrowed money) is suffering losses, they can force liquidation to ensure that the exchange or broker do not lose money. According to coinglass.com, $ 374 million in long positions (betting the cryptocurrency will rise) were liquidated yesterday, the highest level since December 2-3, when $ 636 million and $ 1.58 billion dollars, respectively, were liquidated. You can see below that the values ​​crashed on those days as well.

Bitcoin Price Table

Bitcoin price given by YCharts

There could also be downward pressure on major cryptocurrencies which are seen as an inflation hedge after the Federal Reserve said it would reduce its pace of bond buying next year and would let interest rates rise. Inflation has been a major concern for many crypto investors, and with the Federal Reserve now taking it seriously, there could be a reason some investors are selling Bitcoin.

Now what

Volatility is something all cryptocurrency investors need to get used to and today is one of the days when the market has turned against most cryptocurrencies. But there isn’t a fundamental reason for the downside, like a market failure or a hack, so I don’t see a reason to change your investment thesis today.

What is worth watching in the long term is the leverage in the crypto market and how it can exacerbate gains and losses in trading. Investors are now using both leverage and futures, which are leveraged investment instruments, to buy and short sell Bitcoin and other cryptocurrencies, which could make the market even more volatile. If you are not prepared for these big moves, they can be a shock to the system.

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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Shawn Beecher

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