What happened

The broader cryptocurrency market is seeing another day of bearish momentum. Polygon's (CRYPTO:MATIC) MATIC digital currency token was down by roughly 15% over the previous 24 hours of trading as of 4 p.m. ET on Thursday. Meanwhile, crypto-focused companies Silvergate Capital (NYSE:SI) and Riot Blockchain (NASDAQ:RIOT) also got hit hard, falling roughly 12% and 9.7% on the day, respectively.

Bitcoin and Ethereum are experiencing some significant sell-offs, down roughly 6.6% and 7.5% over the last day. That momentum has extended to top altcoins and stocks with major exposure to the cryptocurrency space, and it looks like more volatility may be in the cards.

Image source: Getty Images.

The overall crypto space has posted fantastic growth across 2021, with leading tokens delivering stellar returns for investors who held on across the stretch. But the market has been displaying elevated volatility lately, and multiple catalysts are shaking up cryptocurrency pricing.

The regulatory climate has been a driving narrative force behind token sell-offs recently as investors weigh whether new regulations, recently passed laws, and potential future legislation will create headwinds for crypto. China led the regulatory charge earlier in the year by introducing new guidelines that banned cryptocurrency trading, mining, and transactions, and it has continued to roll out enforcement mechanisms that have spooked investors. India has also introduced legislation that could effectively ban the trading and use of all cryptocurrencies within its borders.

Similar pressures also appear to be mounting in the U.S. as well. President Biden's recently passed infrastructure bill includes provisions that will tax cryptocurrency trades, and based on comments from the leaders of regulatory agencies and calls from legislators for new governing standards and tax designations on digital currencies, these assets are looking riskier. On Wednesday, CEOs of cryptocurrency trading and services companies testified before the House Financial Services Committee, and the tone and content of that session pointed toward possible new regulations that could adversely impact token valuations.

High volatility has been the norm in the crypto space since its inception, and that doesn't appear likely to change any time in the near future. In addition, cryptocurrency prices are heavily impacted by cyclical trends. Silvergate Capital is down roughly 27% over the last month, while Riot Blockchain is down roughly 30.5%. On the other hand, Polygon's MATIC token is actually up by roughly 17%.

However, it's important to put recent pricing trends in context. Despite those sell-offs, Bitcoin's price per token is still up roughly 72% year to date. Silvergate Capital and Riot Blockchain have posted strong gains as well.

SI data by YCharts

MATIC has been on an even more impressive run -- the token is up roughly 12,000% year to date.

Investors looking at cryptocurrency-related investments should keep their personal tolerance levels for risk and volatility firmly in mind. Bitcoin has gained credibility as a store of value, which has helped power gains for crypto-based stocks including Silvergate Capital and Riot Blockchain. MATIC has gained appeal because its underlying blockchain network can provide services that augment the functionality of the Ethereum network.

Cryptocurrencies have come to be viewed as potential hedges against inflation, and are useful for decentralized finance, gaming, and non-fungible token (NFT) applications. In that sense, the fundamental value cases for crypto and blockchain-based projects seem to have improved significantly. However, investors should proceed with the understanding that there are significant risk factors that could trigger additional crypto sell-offs.

This article represents the opinion of the writer, who may disagree with the official recommendation position of a Motley Fool premium advisory service. Were motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Excerpt from:

Why Polygon, Silvergate Capital, and Riot Blockchain Are Getting Crushed Today - The Motley Fool