Ethereum
Why Bitcoin, Ethereum and Dogecoin are losing ground today
These top three tokens are seeing increasing selling pressure as capital flows affect investor sentiment.
Price action today in the cryptocurrency world has been volatile, with most of the major tokens that investors are closely watching seeing sharp declines over the past day. Starting at 3:30 p.m. ET Tuesday, Bitcoin (BTC -1.04%), Ethereum (ETH -1.99%) and Dogecoin (DOGE -2.52%) had decreased by 3.9%, 4.9% and 5.3% respectively over the last 24 hours.
These moves appear to be the result of a changing narrative in the crypto world. As more investors now focus on fund flows into this asset class, greater recognition is being given to the supply and demand of capital flows in this sector.
As a result, capital is flowing into spot Bitcoin ETFs, such as the Grayscale Bitcoin ETF (GBTC 1.66%), have become a much more relevant focal point for Bitcoin and the entire industry in general.
Reports today indicate that this Bitcoin ETF (and others) have seen significant outflows, which appears to be driving the majority of moves in these three major cryptos. The Grayscale ETF led the way lower, seeing an outflow of $643 million on Monday, with more expected to be announced today.
Let’s look at this particular catalyst, as well as other concerns that investors are currently pricing into Ethereum and Dogecoin.
Why this change of feeling?
Capital flows into spot ETFs are not the only story, but they are currently the main one in crypto. As various spot Bitcoin ETFs such as Grayscale see record inflows in such a short period of time, anticipation of a burgeoning supply and demand dislocation in the Bitcoin market has forced other retail hot money to enter the sector. For higher risk assets such as Dogecoin, this has led to what can only be described as a hype-driven rally.
There have also been some recent comments from Elon Musk on the possibility of further integrating Dogecoin into the You’re here purchasing ecosystem. We’ll have to see whether or not this happens, but it’s clear that Dogecoin’s primary purpose is to be a speculative trading vehicle for those willing to take unusually large risks. In this market, it has worked well for the bulls.
For Ethereum, anticipation of deadlines for the Securities and Exchange Commission to review spot ETF applications from Grayscale and others continues to be a driving factor for this token.
That said, if outflows from spot Bitcoin ETFs continue, this catalyst could be moot. So, investors will undoubtedly get ahead of the catalyst by pricing in expectations, and we will likely see Ethereum trading somewhat in line with Bitcoin until a ruling is made.
Where to go from here
Investors who decided to jump on the crypto bandwagon before this flood of hot money flowed into the sector have certainly done well for themselves. And while we’ve recently seen outflows from the Grayscale Bitcoin ETF and others, it’s also true that these ETFs have assets under management that many thought they wouldn’t have at this point in the cycle. So it’s really a matter of perception right now as to how the Bitcoin market finds its balance.
For Ethereum and Dogecoin, I expect a similar correlation with Bitcoin for some time, until we see the impact of the upcoming Bitcoin halving and potential Ethereum spot ETF approvals. In the meantime, fasten your seat belts: the ride will probably be exciting.
Chris MacDonald has positions in Ethereum. The Motley Fool holds positions and recommends Bitcoin, Ethereum and Tesla. The Mad Motley has a disclosure policy.