Why Binance Coin, Polkadot, and The Sandbox Were All Down Today

What happened

Top cryptocurrencies Binance Coin (CRYPTO: BNB), Polkadot (CRYPTO: DOT), and The Sandbox (CRYPTO: SAND) each saw significant declines today. As of 3:15 p.m. ET, the tokens had dipped 5.7%, 6.3%, and 3.6%, respectively.

The tokens each dipped to their lowest level in a week today, as continued selling pressure in the crypto world drove most major tokens lower. Investors are continuing to price macro headwinds into cryptocurrencies today, with this week’s unveiling of the Fed meeting minutes providing a negative outlook for risk assets amid expected interest rate increases and a faster-than-expected unwinding of the Fed’s balance sheet.

Image source: Getty Images.

So what

Macroeconomic factors affect all asset classes. And while some investors in the crypto community may believe that cryptocurrencies are low-beta assets relative to equities (that’s debatable), the reality is that easy money tends to search for the highest returns possible.

As the interest rates rise and the cost of capital increases, investors are forced to look at the fundamentals and cash flows of their specific investments. With cryptocurrencies generally lacking cash flows, these difficult-to-value assets may see harsher sell-offs in this newfound hawkish environment.


Now what

Central Banks globally have had a difficult time raising rates throughout the pandemic. Despite relatively low unemployment, economic conditions for certain sectors have warranted stimulus. Accordingly, those expecting a lower-for-much-longer interest rate environment have generally been proven correct over the past couple years.

Much of the capital injected into the system has flowed into higher-risk equities, particularly in 2021. With this environment unwinding, investors now appear to be questioning the ultra-bullish thesis underpinning the crypto sector in general.

Will 2022 be the year of the great unwind, both on the monetary policy side and in the crypto world? Time will tell. However, what’s clear is that continued volatility is very likely on the horizon for crypto investors.

10 stocks we like better than Binance Coin
When our award-winning analyst team has a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

They just revealed what they believe are the ten best stocks for investors to buy right now… and Binance Coin wasn’t one of them! That’s right — they think these 10 stocks are even better buys.

See the 10 stocks

*Stock Advisor returns as of December 16, 2021

Chris MacDonald has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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.