Is the long-awaited ‘crypto correction’ finally here?
There was certainly ample evidence to suggest the answer was yes today, as cryptocurrencies both large and small suffered widespread losses, a decline that analysts attributed to profit taking from veteran investors.
Overall, the total market capitalization of cryptocurrencies fell to as little as $91.4bn today, a more than 20% decline from the all-time high of $117.2bn it reached around mid-June, and down over 13% from the day’s open at $105.3bn.
At the time of report, the top 20 cryptocurrencies as ranked by market capitalization had all suffered declines in the last 24 hours, according to data from CoinMarketCap.
Charles Hayter, co-founder and CEO of leveraged cryptocurrency platform CryptoCompare, asserted in his comments that the decline was evidence of how hype had impacted the markets of late.
With media outlets portraying the market as one driven by easy gains, investors drawn to the space, he said, did not know “what they were getting into”.
He said of the day’s events:
“A correction of sorts was [in] the cards.”
At press time, bitcoin was down 7% on the day’s trading, while ether, the digital asset that powers the ethereum blockchain, was down nearly 20%.
Other traders echoed Hayter’s comments that traders were showing an appetite for profit taking.
Brad Chun, chief investment officer of Shuttle Fund Advisor, pointed to profit taking, emphasizing that he believes veteran traders are using the decline to lock in gains made in the previous weeks.
In addition to taking this specific action, some traders have been rebalancing their portfolios as of late, analysts told CoinDesk.
“People are taking cryptos off the table for fiat cash,” Hayter told CoinDesk.
Investor and crypto hedge fund manager Tim Enneking offered further detail, emphasizing that while some traders stick to cryptocurrencies, others trade fiat currencies as well, a factor that could have played a role.
“Some people trade only crypto; others trade both, and this may be a time to diversify.”
Another factor that a handful of traders pointed out was that cryptocurrencies sometimes follow each other in terms of their price movements.
Hayter emphasized the key role played by momentum, telling CoinDesk: “Markets move in sync and when selling is the main momentum driver – traders follow the leader.”
While cryptocurrencies don’t always move in tandem, they appear to have moved together today.
“We are witnessing the still strong correlation between bitcoin and other cryptocurrencies,” Enneking observed. “When bitcoin sees a large move down, as we’ve seen in the past 48 hours, it still has a tendency to take the entire rest of the market with it”.
The end of the rally?
While the cryptocurrency has suffered a pullback lately, this may not be the last we have seen of the rally in these digital assets, traders told CoinDesk.
Even after reaching today’s low of $91.4bn, the market cap of all cryptocurrencies is up more than 400% year-to-date.
After experiencing such sharp gains, it is “healthy” for cryptocurrencies to “take a pause,” Enneking told CoinDesk.
Redwood City Ventures founder Sean Walsh perhaps best summed up the optimistic mood, concluding:
“All investments, even the good ones like [cryptocurrencies], have a respiration rate. They tend to ‘breathe’ periodically during their inexorable upward march in price, and outward march in adoption.”
Rushing water image via Shutterstock
The leader in blockchain news, CoinDesk is an independent media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. Have breaking news or a story tip to send to our journalists? Contact us at [email protected].