The crypto market was shaken early in the day Friday, with prices falling across the board just after midnight ET. There wasn’t a single major piece of news about the cryptocurrency, rather a few things led to a sell-off.
Bitcoin (BTC -7.55%) is down 8.6% in the last 24 hours as of noon ET. In the same period, ether (ETH -7.75%) is down 9.3%, and dogcoin (DOGE -9.30%) fell 14.8%. Prices have stabilized over the past few hours but don’t seem to be recovering any time soon.
The biggest news was a 37.2% increase in producer prices in Germany, mainly due to a sharp rise in natural gas prices in the country. Overall energy prices have more than doubled in the past year, and Russia could cut its natural gas supply ahead of winter, which would push prices even higher.
If prices continue to rise, it could trigger a recession and/or prompt policymakers to raise interest rates to slow the economy. No matter how you look at it, slow growth and low discretionary spending are seen as bad news for the crypto market.
The news from Germany comes a day after US Federal Reserve minutes showed that the central bank does not believe US inflation is under control and could hike rates further here.
On the legal front, U.S. officials are suggesting that Celsius Network’s bankruptcy filing be subject to similar scrutiny as Enron and Lehman Brothers’ investigations into Chapter 11 filings. That could bring closer scrutiny and possible regulation for the industry .
It’s busy here, but I think there are two main reasons for the sudden movement. First, investors who are optimistic that rate hikes will slow in 2022 may have outdated themselves. Not only is inflation out of control in the US, it’s just starting in Europe.
Additionally, crypto tends to have a lot of leverage, which can cause prices to rise or fall quickly. In the last 24 hours, $600 million worth of positions have been liquidated, including $223 million in Bitcoin and $162 million in Ethereum. It’s like fuel for fall.
The good news is that none of these moves fundamentally change the long-term thesis for cryptocurrencies. Developers are still building new companies for blockchain, users are still getting used to using crypto and blockchain, and venture capitalists are pouring money into the space. As long as this continues, the future is bright, but the reality of volatility in crypto can be painful in days like today.
Travis Hoium has positions in Ethereum. The Motley Fool has positions and recommends Bitcoin and Ethereum. The Motley Fool has a disclosure policy.