Why Bitcoin, Solana, and Terra Luna Classic Are Declining Today

What happened

The market rout that drove the value of nearly all risk assets lower on Tuesday appears to have stalled for stocks on Wednesday, but it continues in the world of cryptocurrencies. The Bureau of Labor Statistics delivered its August consumer price index report on Tuesday, and the inflation rate clocked in at a higher-than-expected 8.3% year over year. That was lower than July’s result of 8.5%, but it still hit most major tokens hard. Continued selling pressure has resulted in a decline in top tokens Bitcoin (BTC -3.52%) and Solana (SUN -5.12%) of 3.5% and 4.1% respectively during the last 24 hours, from 11:15 a.m. ET Wednesday.

For investors in Terra Luna Classic (LUNC -19.14%), some discouraging token-specific news has led to a 21.6% decline over the same period. On Wednesday, a South Korean court issued arrest warrants for Terraform Labs founder Do Kwon and five other people involved. It could be the final nail in the coffin for this struggling project, which had previously seen speculative buying pressure from traders.

So what

Almost all talk of the potential for low-beta exposure to risky assets via cryptocurrencies is over. There has been an impressive degree of correlation between digital assets and stocks over the past two years, which has been very unfavorable for crypto investors during this year’s sell-off. Although this correlation has declined from its peak over time, in general, the same macroeconomic forces that drive stocks higher or lower appear to have significant influence over the price action of many top tokens.

Bitcoin and Solana are both attracting a significant amount of institutional investor interest. Consequently, these assets may continue to see outflows during this period of de-risking until the rhetoric around monetary policy changes. Generally, more expensive money means less liquidity in search of growth. For these high-upside, higher-risk assets, that could lead to continued downward pressure, at least in the short term.

For investors in Terra’s ecosystem of tokens, word that a warrant has been issued is probably the last thing they wanted to hear. Whether one is involved in LUNC or other Terra-related assets, the advance to the regulatory investigation to this extent is just the latest in a flurry of negative catalysts. Investors have reason to be concerned about the viability of the Terra ecosystem following this news, especially given the turmoil in the Terra community.

What now

Whether investors are considering quality crypto projects or more speculative options, it’s a tough time to be an investor right now. Macro headwinds abound, providing a bearish backdrop for all digital assets. And when it comes to those with token-specific issues like LUNC, it doesn’t seem like the time to throw good money after bad.