Why cryptocurrency stocks collapsed today

What happened

Many investments related to the cryptocurrency market fell on Friday, after bitcoin prices fell 11.6% in 24 hours.

Data Source: Yahoo! Finance.

So what

Bitcoin prices have exploded widely since early October 2020, from around $ 11,000 to over $ 40,000 per token over a three-month period. Since peaking on January 9, bitcoin prices have meandered over the past week and a half. There was a big drop on Monday January 11 and a fairly steady rise for the rest of the week. Token prices almost hit the benchmark of $ 40,000 again before falling again today.

Cryptocurrencies have caught the attention of large investment firms this year, a major reason behind bitcoin’s big gains in recent months. At the same time, the big names can occasionally cause sudden price drops. Today, investment firm UBS Global Wealth Management reminded investors that the bitcoin rally may end in tears. Cryptocurrencies are risky and volatile, and investors could end up losing whatever they put in this unproven asset class.

“There is not much in our view to prevent the price of a cryptocurrency from dropping to zero when a better-designed version is launched or if regulatory changes stifle sentiment,” the analyst wrote. UBS Michael Bolliger.

That was enough to cause a sobering price drop which also crippled many stocks that tracked bitcoin higher.

Now what

Bolliger is right, of course. The regulatory framework for cryptocurrencies is still evolving, adding to the market uncertainty. Investing everything in a single cryptocurrency is a very bad idea, as a better version could really replace bitcoin at the top of the heap. I’m not saying that will occur but the risk is not zero percent. If you’re investing in cryptocurrencies today, it’s probably best to split your holdings between Bitcoin and a few other respectable names like Ethereum and Litecoin. All the big names are falling today, but their performance can vary dramatically from time to time.

Don’t cry for the Bitcoin specialists, however. With the exception of the Ebang International micro-cap, all of them have done extremely well during the current bitcoin boom. Grayscale Bitcoin Trust has gained 347% in the past 52 weeks and MicroStrategy is up 331% over the same period. CleanSpark stock posted a gain of 614%. And if you thought those results were impressive, we didn’t even talk about Riot Blockchain’s 1,964% return or Marathon’s overwhelming 2374% gains. All of this after undergoing Friday’s major haircuts.

Cryptocurrencies can be fun, exciting, and profitable, but you can also lose sleep because of their risky nature and their sudden drop in price. You cannot bet on these promising assets without accepting a large portion of risk. Today just wasn’t a good day for Bitcoin and its friends.