Why Cryptocurrencies Like Ethereum and Dogecoin Were Sinking Today – The Motley Fool

It certainly feels like we’re in the midst of a crypto correction these days. Among the best asset classes for investment in the early days of the year, many digital coins and tokens have reversed course in recent days by trading lower.

That trend continued on Wednesday, with top coin Ethereum (ETH -2.58%) down by more than 2% in late afternoon trading and high-profile meme coin Dogecoin (DOGE -2.08%) sliding at a similar rate. Other altcoins were taking harder hits, including Axie Infinity (AXS -4.77%) and Optimism (OP -6.72%), which were heading south at a nearly 6% and almost 11% clip, respectively.

A spot of bother

Interestingly, it seems a major factor driving crypto prices skyward recently might be a reason for them sliding now. Spot Bitcoin exchange-traded funds (ETFs) continue to surge in popularity, soaring to multiweek highs in trading action on Tuesday. According to crypto news and analytics site, the volume of such securities that day reached nearly $2.6 billion.

Investors like spot Bitcoin ETFs because they provide near-direct exposure to Bitcoin without the hassle of having to manage it. This typically involves opening, funding, and maintaining a specialized crypto trading account and handling the often wonky particulars of digital wallet management. With a spot Bitcoin ETF, all an interested investor needs to do is buy shares through a traditional brokerage.

As a group, cryptos also tend to wane when there’s hot action in other types of securities. Wednesday was all about tech stocks — remember those? Much of the investment world was focused particularly on the latest quarterly report published after market hours Wednesday by graphics processing unit (GPU) titan Nvidia (spoiler alert; the company did gangbusters in its fourth quarter, beating on both the top and bottom lines).

With much action in all manner of tech stocks in advance of that earnings release, it’s likely that some crypto-holders did a little reallocating by shifting part of their funds from coins/tokens to tech equities.

Ethereum should soon get the spot ETF treatment, too

Nvidia is likely to stay the investment story for the rest of the week, and those spot Bitcoin ETFs sure aren’t going anywhere. Considering that, there’s more than a small chance this crypto correction could last for a few more days.

As usual in market downturns, though, that would open up opportunities for buying on the slump. Personally, I’ll be holding on to my (admittedly tiny) Ethereum position, as that coin is almost certain to be the next digital asset getting the spot ETF treatment. Dogecoin is always somewhat of a dodgy investment given its continued lack of utility and its volatility, but utility plays like Optimism could rise along with the coming of spot Ethereum ETFs.

Eric Volkman has positions in Bitcoin and Ethereum. The Motley Fool has positions in and recommends Bitcoin, Ethereum, and Nvidia. The Motley Fool has a disclosure policy.