The crypto landscape isn’t looking too pretty right now. Digital assets are suffering from huge losses today, thanks to uncertainty that is plaguing the global economy. Even the biggest players like Bitcoin (BTC-USD), Ethereum (ETH-USD) and Cardano (ADA-USD) are not proving immune to the turmoil. But what are the factors holding down current crypto prices this morning?
Cryptocurrencies are showing they they are more closely related to the traditional stock market than crypto bulls would like to admit. While major stock indices continue to decline in response to bearish catalysts, so too do cryptocurrencies. The losses have much to do with a recent resistance against higher-risk investments, something which affects tech stocks. By extension, this drags down the market as a whole, seeing how influential tech stock prices are to indices like the S&P 500 and Nasdaq.
The root of this new aversion to risk has much to do with the Federal Reserve. The Fed is in the midst of tapering its stimulus spending; since the onset of the Covid-19 pandemic, the central bank had been stimulating the economy through an aggressive spending program. This program opened the door for investors to make riskier investments, allowing the tech industry to boom. It also created the variables through which the cryptocurrency industry was able to thrive.
Beyond reducing asset purchases, the Fed is looking to institute several interest rate hikes to fight inflation, the first of which is set to occur in only a handful of days. As such, investors are pulling out of crypto, a high-growth sector that investors don’t believe will fare well over the next year.
Current Crypto Prices Hampered by Russia-Ukraine Conflict
These factors have been on the horizon for a long while now; investors have had time to prepare for tapering and rate hikes. However, the conflict between Russia and Ukraine is coming to a head this morning in a much less-predictable catalyst, and the news is serving to also hold down current crypto prices.
In the early hours of the morning, Russian military forces began an invasion of Ukraine. The conflict, which has been in the spotlight for days, is serving to greatly influence crypto.
The latest news led to an immediate flight of crypto investors’ money from exchanges. In the hours following the news break, nearly $250 million in liquidations occurred across crypto and crypto futures exchanges. This adds up to a total of over $400 million in liquidations in the past 24 hours, when fears of a military dispute began to pick up more greatly. All together, the fears are leading to a huge slump for the entire crypto industry. The market capitalization of the crypto asset class fell to $1.5 trillion.
Fed Indicates It Is Unlikely to Reverse Rate Hikes
Crypto investors might be hoping the Fed will rethink its rate hike plan after Russia invaded Ukraine, but they are unlikely to see this. Fed Bank of Richmond President Thomas Barkin indicated that the central bank is unlikely to change its mind on the multiple expected hikes in 2022. Speaking on the Russian news, Barkin says the Fed will “have to see whether this Ukrainian situation changes that narrative.”
With all of these factors at play, current crypto prices are being held down. Bitcoin is dropping 7% in response to the invasion. Ethereum’s ETH is down 9%, while Cardano’s ADA is losing over 10%. Popular layer-1 Avalanche (AVAX-USD) is trading down 9% and Ethereum-scaling play Polygon (MATIC-USD) is losing 10%.
On the date of publication, Brenden Rearick did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.