Cryptocurrency assets like Coinbase Global (NASDAQ:COIN) and cryptocurrencies Dogecoin (CRYPTO:DOGE), Ethereum (CRYPTO:ETH), and Bitcoin (CRYPTO:BTC) were down between 3% and 5% this morning but have since recovered more than half of the losses.
Sharp moves in the cryptocurrency space are nothing new; however, the past week has seen a wide divergence between the prices and other risk assets like the technology-laden Invesco QQQ Trust (NASDAQ:QQQ).
As global stock markets plunged on Monday, the prices of all cryptocurrency-related assets dropped. Yet, as markets recovered on Tuesday, the prices of cryptocurrencies remain under pressure. The trend of underperformance has been in place since mid-May.
There is no indication the selling will end anytime soon. Trading volume in Bitcoin at the largest exchanges fell 40% in June. That said, volume can’t be the main factor. Although institutional products related to Bitcoin have seen outflows over nine of the past 10 weeks, the reverse has been true of Ethereum. And its price is also off more than 50%.
Perhaps the best explanation is China’s continued crackdown on cryptocurrency miners. The country is preparing to launch its own digital currency. In late June, it ordered a stop to operations in some provinces that were responsible for at least half of all Bitcoin mining power on earth.
Adding salt in the wound, U.S. Federal Reserve Chairman Jerome Powell recently said creating a digital dollar is a high priority. The glass-half-full view is that governments are validating the concept and usefulness of cryptocurrency. For now, the half-empty perspective is dominating.
Earlier today, the Securities and Exchange Commission revealed it had shut down an alleged cryptocurrency-based Ponzi scheme run by an 86-year-old woman and her 54-year-old son. News like that certainly won’t help to change the negative sentiment.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
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