Another Friday, another sharp bearish turn for leading cryptocurrencies. Bitcoin (CRYPTO:BTC), Ethereum (CRYPTO:ETH), and Solana‘s (CRYPTO:SOL) respective tokens were down roughly 5.7%, 6.8%, and 8.9% over the previous 24 hours of trading as of 4:30 p.m. E.T.
After concerns about the impact from the coronavirus omicron variant prompted steep valuation pullbacks for most cryptocurrencies on Black Friday, investors seemed to have digested the risk. Many top cryptocurrencies had been posting strong gains across the last week of trading, but valuations are once again tumbling in today’s trading session.
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Investor appetite for risk is vacillating as we move toward the end of the year. Despite starting the week with recovery momentum on the heels of recent sell-offs, both stocks and cryptocurrencies moved lower as the week progressed, and more volatility could be in the cards.
The quick recovery posted by many cryptocurrencies after last week’s big Black Friday sell-off is on the verge of being short-lived. Investors seemed to shrug off concerns that the omicron variant would curb bullish momentum in the crypto space, but news of the virus’s spread and the potential impact it could have on supply chains and other facets of the economy is once again pushing investors to become more risk-averse.
While supply chain issues may not have an obvious connection to cryptocurrency pricing movements outside of the availability of graphics cards and other mining-related hardware, concerns about the omicron variant may be having a less direct impact on cryptocurrency valuations. Growth-dependent tech stocks also had a bad week, with the tech-heavy Nasdaq Composite index closing out the week down roughly 2.5%. Cryptocurrency and equity prices aren’t typically closely correlated, but big sell-offs for stocks may be causing investors to become more risk-conscious in general and move out of crypto positions.
In addition to omicron fears, rising Treasury bond yields may be prompting investors to move out of riskier investments in pursuit of safer returns. The potential for new regulatory crackdowns may also be weighing on cryptocurrency valuations. China has effectively banned cryptocurrency transactions and mining, India has recently put forward legislation that could ban all private cryptocurrencies, and the recently signed U.S. spending bill included new taxes for cryptocurrency brokers. Among these various factors, Bitcoin, Ethereum, and Solana faced a storm of bearish catalysts on Friday.
While the recent pricing moves are substantial in absolute terms, the pricing swings also look fairly normal when viewed in historical context. The cryptocurrency market as a whole remains highly volatile, and even Bitcoin, Ethereum, and Solana, as well as other relatively well-established coins, are prone to posting big pricing swings on little if any news.
Ethereum Price data by YCharts
Despite recent sell-offs, Bitcoin’s, Ethereum’s, and Solana’s tokens have posted stellar gains in 2021. Gains for Solana’s SOL token across the stretch are particularly eye-catching and have been driven by surging adoption for its blockchain network, but investors should keep in mind that the overall cryptocurrency market remains highly volatile and prone to cyclical pricing trends.
Even with recent pullbacks for Bitcoin’s, Ethereum’s, and Solana’s cryptocurrency prices, it seems clear that the overall crypto market is still in a bullish phase. Interest in digital tokens and blockchain networks for decentralized finance applications and non-fungible token (NFT) development has surged this year, and the broader crypto space has seemed nearly unstoppable despite intermittent setbacks.
As with stocks, predicting bullish and bearish cycles in the crypto market is incredibly hard to do with a high level of accuracy. It’s possible that the current bull market in crypto still has plenty of legs, but investors should also weigh the risk that the crypto space will face more bearish pressures in the near future. For investors looking to build positions in Bitcoin, Ethereum, and Solana, making steady purchases rather than large, lump-sum buys offers a way to mitigate cyclical risks.
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.