What happened
Markets have taken a nosedive on Thursday after Russia began invading Ukraine, and cryptocurrencies have taken the brunt of the drop. Not surprisingly, altcoins are magnifying the losses being felt by bigger, more established cryptocurrencies.
As of 12:40 p.m. ET on Thursday, Kadena (KDA 3.96%) had dropped as much as 23.2% over the last 24 hours, Theta Network (THETA 9.91%) hit a low, down 20.1%, and Amp (AMP 3.82%) plunged 21.2%. Values recovered slightly in morning trading, but are still sharply off their highs.
Image source: Getty Images.
So what
Investors are selling risky assets today because of the geopolitical uncertainty raised by Russia's attack. We don't know if the attack will lead to a broader conflict, sanctions that lead to inflation and hurt the economy, or very little global impact at all. That uncertainty alone is hurting asset values today.
Ironically, cryptocurrencies were supposed to be a safe haven for days like this. The two advantages of cryptocurrencies were supposed to be their decentralized nature, which would make them less susceptible to government actions, and the store of value as the world prints more money.
In reality, cryptocurrencies, and more specifically altcoins, have traded like highly speculative assets that can swing wildly day to day. We are seeing that in action today, and that's why valuations are down big.
Now what
Big moves like this are out of our control as investors and that's what makes them so difficult to handle. Macro fears are driving this selling and that could last for days, weeks, or even months.
But I'll point out that war has typically not caused long-lasting slumps in the market. Conflicts in the Persian Gulf, Afghanistan, and Iraq over the last 30 years have been followed by surges in the stock market and that may happen again. Cryptocurrencies are so new that there's no history of their reaction to geopolitical conflict, but I think a recovery will come in time.
The bigger concern for altcoin investors is the fact that these cryptocurrencies have small market capitalizations, few users, and few developers on their platforms. As the digital world begins to adopt cryptocurrency more and build projects with smart contracts and other new features, these may not be the ultimate winners in the market.
While I am keeping an eye on the conflict in Eastern Europe, it's not keeping me out of the cryptocurrency market today and I'm more bullish on valuations than I was yesterday. This conflict will eventually pass and the cryptocurrencies that can build long-term value will still be big winners for investors.
