Why cryptocurrencies are on the decline today

What happened

In another volatile day, cryptocurrencies fell rapidly on Tuesday, wiping out more than Monday’s gains. In the last 24 hours, Bitcoin (CRYPTO: BTC) decreased by 3%, Ethereum (CRYPTO: ETH) is down 5%, and Dogecoin (CRYPTO: DOGE) fell 7.6%. Momentum appears to be pushing these cryptocurrencies down as well, so the fall may not be over yet.

As usual, regular volatility is probably the biggest driver, with cryptocurrencies simply selling while investors take profits. But there are also fundamental concerns that are of concern to investors as well.

So what

I think the biggest concern is that hackers have stolen hundreds of millions of dollars in cryptocurrency over the past few weeks. The $ 600 million Poly Network hack hit the industry a few weeks ago, but those funds have now been returned. This is a $ 97 million heist last week that investors may have just heard about. Theives has reportedly already “cleaned up” $ 20 million worth of cryptocurrency that may not be recovered and it is possible that most of the stolen cryptocurrency is gone. If the risk of hacking increases, it could be terrible for cryptocurrencies in the long run.

The regulatory front is also fraught with risk. SEC Chairman Gary Gensler has said he supports rules that protect investors and consumers without killing cryptocurrencies altogether. And for now, that means treating them like securities, like any stock or bond. This comes with a double-edged sword: on the one hand, it signals a legitimacy that could increase the adoption of cryptocurrencies; on the other hand, it could lead to broad tax consequences for traders and investors. And with rules still pending, it’s no surprise to see a pullback when cryptocurrencies rise like yesterday.

On a commercial level, it is not uncommon for an asset to fall back after a rapid increase in price. In the case of each of these cryptocurrencies, you can see that they have jumped over 50% in value over the past month, before today’s withdrawal. Sometimes a correction is just a normal part of the investment.

Bitcoin price data by YCharts

Now what

The battle between cryptocurrency fans and traditional financial infrastructure continues, and it will be a volatile race. But I think it’s clear that cryptocurrencies are carving out a niche for themselves, either as a store of value or as a way to pay for goods and services. But there are still unknowns as to how governments around the world will treat cryptocurrencies.

What is of most concern in the long run are the regular hacks that hit cryptocurrency wallets. If investors and consumers can’t believe their cryptocurrency will be safe, they may not adopt it as widely as many hope. And this is ultimately what will keep cryptocurrency values ​​from growing.

I would consider today as yet another example of cryptocurrency volatility, but watch for hacking and regulatory trends for cryptocurrencies as this is what will likely tell us if this pullback is temporary or the start. of a downward trend.