Last week, cryptocurrency prices crashed dramatically along with tech stocks and other assets. Bitcoin, Ether, and other major cryptocurrencies all dipped, as did smaller “meme coins,” like Shiba Inu and Dogecoin. It wasn’t immediately clear what triggered the crash. The selloff came along with volatility in tech stocks, which have been somewhat correlated with Bitcoin lately. However, there was no one single catalyst that could account for the selloff that was observed.
Shiba Inu was one of the hardest-hit coins. Down 30% in a seven-day period, it took a much bigger dip than Bitcoin did. In this article I will explore the dip in Shiba Inu’s price, and try to determine why exactly it fell so much more than other cryptos.
Why crypto is crashing The most obvious culprit for Shiba Inu’s price decline was volatility in the broader crypto market. When Bitcoin dips, other cryptocurrencies tend to dip with it. Bitcoin, Dogecoin, and Shiba Inu coin all fell more than 10% in the seven-day period from last Monday to Saturday night. ETH was technically up over that seven-day period, but it fell from its high set on Wednesday.
ETF flows might partially explain this strong correlation between different cryptocurrencies. Bitcoin is now a part of crypto ETFs like Purpose Bitcoin ETF (TSX:BTCC.B). Purpose literally holds nothing but BTC, but there are other crypto ETFs that hold diversified portfolios. Whenever an asset makes up a large percentage of an index, it can take the whole index down with it. If you have an index that’s 50% Bitcoin, and Bitcoin dips 10% while the other assets don’t change in price, then the index should dip 5%. Crypto ETFs that hold a lot of Bitcoin can therefore take other cryptos down when Bitcoin falls in price.
That wouldn’t explain why Shiba Inu coin fell more than Bitcoin, though. In the next section, I’ll attempt to determine why that might have happened.
What about Shiba Inu specifically? The most obvious culprit for SHIB’s steep price decline relative to Bitcoin is its volatility. While we can’t calculate a beta coefficient for SHIB, it is obvious that it is volatile just by a glance at its chart. When an asset swings up several million percentage points and then crashes more than 50% in just one year, it’s pretty volatile. So, if the crypto market is crashing with Bitcoin, and SHIB is more volatile than Bitcoin, then we’d expect it to sell even more than Bitcoin. That’s exactly what we’re seeing.
As for why SHIB is more volatile, it has to do with its smaller market cap. Bitcoin is worth about a trillion dollars; SHIB’s market cap is much smaller at $21 billion. The smaller an asset’s market cap is, the more a relatively small buy can move its price. Small-cap stocks are generally more volatile than large-cap stocks for this exact reason.
Foolish takeaway It’s been a tough couple of weeks for Shiba Inu Coin, and it could continue to be tough going forward. With the broader crypto market selling off, anything could happen. I don’t invest in crypto, but if I did, I would go with Bitcoin or Bitcoin ETFs like BTCC.B instead of meme coins like Shiba Inu. These coins are a pure gamble.
The post Crypto Crash: Why Shiba Inu Coin Fell 30% appeared first on The Motley Fool Canada.
Fool contributor Andrew Button has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.
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