Why Bitcoin, Ethereum and Dogecoin Plunged This Morning

What happened

The crypto market was shaken early in the day on Friday with prices across the board crashing just after midnight ET. It wasn’t a single big piece of cryptocurrency news, but rather a couple of things that converged to cause the selloff.

Bitcoin (BTC -7.55%) fell 8.6% over the last 24 hours at noon ET. In the same time frame, Ethereum (ETH -7.75%) was down 9.3%, and Dogecoin (DOGE -9.30%) fell 14.8 percent. Prices have stabilized in the last couple of hours, but there doesn’t seem to be an imminent recovery.

So what

The biggest news was a 37.2% increase in producer prices in Germany, mainly due to a sharp increase in natural gas prices in the country. Energy prices overall have doubled in the past year, and Russia may cut its supply of natural gas ahead of winter, which is likely to lead to even higher prices.

If prices continue to rise, it could lead to a recession and/or prompt politicians to raise interest rates to slow the economy. No matter how you look at it, lower growth and less discretionary spending are seen as bad news for the crypto market.

News from Germany comes a day after minutes from the US central bank showed that the central bank does not believe inflation is under control in the US, so interest rate hikes may continue here as a result.

On a legal front, U.S. officials suggest that Celsius Network’s filing for bankruptcy protection is undergoing a similar investigation to the Enron and Lehman Brothers’ Chapter 11 investigations. That could bring additional scrutiny and potential regulation to the industry.

What now

There’s a lot going on here, but I think there are two main drivers for the sudden move. First, investors who are optimistic that rate hikes would slow down in 2022 may have gotten ahead of themselves. Not only is inflation out of control in the US, it may just be running in Europe.

Also, crypto tends to have a lot of leverage, which can lead to rapid increases or decreases in prices. In the last 24 hours, $600 million positions have been liquidated, including $223 million Bitcoin and $162 million Ethereum positions. It is like fuel for the decline.

The good news is that none of these moves fundamentally change the long-term thesis for cryptocurrencies. Developers are still building new businesses for the blockchain, users are still getting used to using crypto and the blockchain, and venture capitalists are pouring money into the space. As long as that continues, the future is bright, but the reality of volatility in crypto can be painful on days like today.