Ethereum
Why cryptocurrencies like Ethereum and Dogecoin were sinking today
We increasingly feel like we are experiencing a new crypto correction.
It certainly feels like we’re in the middle of a crypto correction these days. Among the best asset classes to invest in at the start of the year, many digital coins and tokens have reversed their trend in recent days by trading lower.
This trend continued on Wednesday, with the best piece Ethereum (ETH -1.88%) down more than 2% in late afternoon trading and high-profile coins Dogecoin (DOGE -4.20%) sliding at a similar rate. Other altcoins have been hit harder, including Axie Infinite (AXS -2.39%) and Optimism (P.O. -4.57%), which were heading south at a clip of almost 6% and almost 11%, respectively.
A troublesome place
Interestingly, it appears that a major factor that has driven cryptocurrency prices up recently could be a reason why they are falling now. Place Bitcoin exchange-traded funds (ETFs) continues to gain popularity, reaching multi-week highs during trading on Tuesday. According to crypto news and analysis site TheBlock.com, the volume of these securities reached almost $2.6 billion that day.
Investors like spot Bitcoin ETFs because they offer almost direct exposure to Bitcoin without having to manage it. This typically involves opening, funding, and maintaining a specialized crypto trading account and dealing with the often wonky details of managing digital wallets. With a spot Bitcoin ETF, all an interested investor needs to do is purchase shares through a traditional brokerage.
As a group, cryptocurrencies also tend to decline when there is high activity in other types of securities. Wednesday was all about tech stocks – remember that? Much of the investment world has been particularly focused on the latest quarterly report published Wednesday after market hours by graphics processing unit (GPU) titan Nvidia (spoiler alert; the company performed exceptionally well in the fourth quarter, beating both the top and bottom line).
With lots of action in all sorts of tech stocks ahead of the earnings release, it is likely that some cryptocurrency holders have done a little reallocation by moving some of their funds from coins/tokens into tech stocks.
Ethereum should soon also benefit from spot ETF treatment
Nvidia will likely remain the investing story for the rest of the week, and these spot Bitcoin ETFs are certainly not going anywhere. Given this, there is more than a small chance that this crypto correction will last for a few more days.
However, as is usual during market downturns, this would open up buying opportunities during a recession. Personally, I will hold on to my (admittedly small) Ethereum position, as this coin is almost certain to be the next digital asset to receive the ETF spot treatment. Dogecoin is still a somewhat questionable investment given its continued lack of utility and volatility, but utility plays like Optimism could rise with the arrival of Ethereum spot ETFs.
Eric Volkman has positions in Bitcoin and Ethereum. The Motley Fool holds positions and recommends Bitcoin, Ethereum and Nvidia. The Mad Motley has a disclosure policy.