The crypto market is a sea of red again, with recent outperformers like programmable blockchain Cardano's ADA token leading major cryptocurrencies lower.
At press time, ADA was trading near $1.36, a 10.6% fall in the last 24 hours. Scaling tool Polygon's MATIC token fell 6%, even as the network implemented Ethereum's fee-burning mechanism, which will destroy MATIC tokens, making its supply deflationary. Solana's token SOL, Binance token BNB and ether each fell over 2%, while bitcoin traded 1% lower near $41,200, according to CoinDesk data.
ADA's decline appears to be typical of a correction often seen after a notable price rally.
The token jumped nearly 60% to $1.64 earlier this month, outperforming bitcoin as the impending launch of SundaeSwap, the first decentralized finance (DeFi) exchange on the Cardano blockchain, revved up investor interest in the cryptocurrency.
Pseudonymous Twitter-based ADA whale said that some of the reasons for ADA's recent bullish momentum was popular trader Cobie tweeting about buying ADA at $1.20 and Cardano winning Ethereum founder Vitalik Buterin's Twitter poll asking the community which blockchain would be a suitable alternative to Ethereum.
Cardano is likely to be in the news in the coming weeks. "Keep eyes on the various scaling initiatives coming to Cardano the next months," ADA whale told CoinDesk in a Twitter chat. "Cardano Chain is currently running at pretty much full capacity, block size likely increases by the end of the month, next month will see the Babbage hard fork, which helps things further.
"Transactions per second should scale to 500-1,000 this year in various ways," ADA whale added.
While those impending developments can put a fresh bid under ADA, the cryptocurrency remains vulnerable to a continued sell-off in bitcoin, if any.
"There have been selected alternative cryptocurrencies that are performing rather well, including cardano. We don't foresee these holding up very well if we continue in this 'risk-off' sentiment," Matthew Dibb, chief operating officer and co-founder of Stack Funds, told CoinDesk in a WhatsApp chat.
Risk-off weighs over bitcoin
Bitcoin and traditional market risk assets remain under pressure as bond yields continue to rise on expectations of earlier and quicker rate hikes by the U.S. Federal Reserve. Notably, the two-year Treasury yield, which tracks short-term interest rate and inflation expectations, hit a fresh 11-month high of 1.076% soon before press time.
Early Wednesday, Anna Wong, chief U.S. economist for Bloomberg Economics, said that a 50-basis point (bps) interest rate hike is warranted at the Fed's March meeting, according to FXStreet. The Fed funds futures are pricing a 93% chance of the central bank raising rates by 25 basis points in March.
Policy tightening is bearish for asset prices in general. Some observers are of the opinion that the worst may be behind for bitcoin.
"I'm really surprised BTC is holding up while Nasdaq pukes. In retrospect, the bitcoin sell-off led the Nasdaq and looks like BTC has found its bottom already while Nasdaq hasn't," one investor tweeted early Wednesday.
While the Nasdaq index fell 2.6% on Tuesday, bitcoin ended the day flat. The cryptocurrency has lost nearly 40% of its value since mid-November as the Fed went from predicting a single rate hike in 2022 to three hikes. The tech-heavy Nasdaq peaked after mid-December and has declined over 8% since then, according to data provided by charting platform TradingView.
Stack Funds' Dibb said, "The crypto market more broadly is showing some resilience, with trading volumes remaining low in the absence of large bids/offers despite equities recently heading lower."
Dibb, however, foresees a deeper decline if the bulls fail to defend the recently held psychological support of $40,000.
"The market has been eyeing the $40,000 handle as strong support. However, a close below this area will likely lead to larger liquidations and a grind down to the mid-30's," Dibb said.
Looking ahead, aside from macro factors, the market may take cues from the U.S. House Energy and Commerce subcommittee's review of the environmental impact of cryptocurrencies scheduled for Thursday.