Why XRP (Ripple) Is Sinking Today

Key Points

• Most of the crypto sector's struggles appear to be linked to a "flash crash" in Bitcoin over the weekend.

• A Bitcoin whale reportedly sold tens of thousands of Bitcoins.

• Bitcoin is considered a bellwether for the sector.

• 10 stocks we like better than XRP ›

Since the late afternoon last Friday, the price of XRP (CRYPTO: XRP) had fallen roughly 4.2% as of 10:46 a.m. ET today. There is no obvious reason behind the move, but the entire sector has been struggling, due to Bitcoin's decline.

Bitcoin's flash crash

Federal Reserve Chair Jerome Powell's speech last Friday in Jackson Hole sent the market surging because Powell hinted that the Fed is open to adjusting its policy stance, and investors believe this means the Fed will cut interest rates at its September meeting.

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Cryptocurrencies typically perform well under lower interest rates. However, Bitcoin reportedly experienced a "flash crash" over the weekend after a Bitcoin whale reportedly sold 24,000 Bitcoins, triggering forced liquidations. Whales are investors who hold large amounts of a particular cryptocurrency. Bitcoin is considered a bellwether for the crypto sector, so it tends to influence the direction of most cryptocurrencies.

"Bitcoin is under pressure to start the week. The decline reflects renewed demand for the U.S. dollar, softer equity futures, and possibly profit-taking after weekend volatility," LMAX Group's Market Strategist Joel Kruger told Investor's Business Daily.

A risk crypto investors need to understand

Just like in the broader stock market, crypto investors should be aware of market risk. Even if you like a particular cryptocurrency, all tokens can struggle if broader market headwinds arise. When Bitcoin moves higher, most cryptocurrencies tend to follow, and vice versa.

I still think XRP is one of the more compelling cryptocurrencies to watch, given its network utility and ties to Ripple, which is bridging the gap between the crypto and mainstream finance. But the token will likely continue to be extremely volatile, which is why investors should view XRP as a smaller, more speculative investment.

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Bram Berkowitz has positions in Bitcoin and XRP. The Motley Fool has positions in and recommends Bitcoin and XRP. The Motley Fool has a disclosure policy.