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Why Bitcoin, Ethereum and Dogecoin are falling today

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Why Bitcoin, Ethereum and Dogecoin are falling today

What happened

Cryptocurrencies took a breather this morning after a fine rally in recent days as investors digest more macro news and the electric car maker You’re here (NASDAQ: TSLA) announced that it had sold a large part of its Bitcoin (CRYPTO: BTC) assets.

In the past 24 hours as of 9:45 a.m. ET, the price of Bitcoin had fallen by more than 5%, the price of Ethereum (CRYPTO:ETH) had fallen by more than 6%, and the price of the meme token Dogecoin (CRYPT: DOGE) was down almost 7%.

So what

The European Central Bank (ECB) took the market by surprise this morning by announcing that it would increase its main key rate by 50 basis points (0.5%). The ECB has kept rates negative since 2014, so the decision is important, but investors didn’t think the ECB would start with half a point. Riskier assets, including cryptocurrencies, have not fared well amid rising interest rates this year, as rising interest rates make safer assets more productive, requiring essentially more riskier assets generally trading at higher valuations.Person looking down at the graph.

Image source: Getty Images.

But another reason for the crypto selloff today could be due to the revelation that Tesla sold 75% of its Bitcoin holdings, which equates to $936 million. Tesla initially invested $1.5 billion in Bitcoin in early 2021.

On Tesla’s second quarterearnings callYesterday, CEO Elon Musk attributed Bitcoin’s selloff to uncertainty surrounding how COVID-19 lockdowns would play out in China, which had imposed month-long lockdowns in several major cities earlier this year.

“So it was important for us to maximize our cash position, given the uncertainty of the COVID lockdowns in China. We are certainly open to increasing our Bitcoin holdings in the future, so that shouldn’t be considered. like a verdict on Bitcoin. It’s just that we were concerned about the overall liquidity of the business, given the COVID shutdowns in China,” Musk said.

“And we haven’t sold any of our Dogecoin,” Musk added.

Later at Teslaearnings call Musk also basically launched when asked by an analyst how he views Bitcoin as an inflation hedge, a widely debated topic, and a long-term asset.

“Cryptocurrency is a side show,” Musk said, adding that “cryptocurrency is not something we think about a lot” and “we’re not here or there on cryptocurrency. “.

Now what

Musk’s explanation for selling Bitcoin seems somewhat reasonable, but there’s no doubt that the famed entrepreneur has the power to move the crypto markets. After all, Tesla’s decision to buy Bitcoin definitely helped push the token up, and Musk played a huge role in driving up the price of Dogecoin last year with his meme support for the token on social media.

Despite the sell-off, I still see strong long-term potential for Bitcoin and Ethereum, which I expect to be there and remain relevant, although they could certainly decline in the near term.

Bitcoin is the pioneer of blockchain technology and cryptocurrencies and continues to gain visibility in the traditional financial system. Ethereum, with its smart contract technology, has many real use cases, and the network should improve after a set of ongoing upgrades are complete.

Dogecoin was created as a joke and doesn’t seem to have any real use case or technical advantage over other cryptocurrencies, which is why I have no interest in investing in the token.

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Bram Berkowitz has positions in Bitcoin and Ethereum. The Motley Fool has positions and recommends Bitcoin, Ethereum and Tesla. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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