What needs to happen before investors take cryptocurrencies seriously

Thursday brought continued uncertainty to Wall Street as investors continued to try to consider the ramifications of the latest Federal Reserve meeting for the stock market and the economy. At 1 pm ET, the Dow Jones Industrial Average (DJINDICES: ^ DJI) was down 24 points to 36.383. However, the S&P 500 added 14 points to 4.714, while the Nasdaq Composite gained 47 points to 15.147.

Cryptocurrencies, however, continued to decline in value, extending declines from all-time highs of several months ago. As the tug-of-war between cryptocurrency bulls and bears continues, however, the more important question of how average investors perceive the digital asset market remains unanswered. Today's market action reveals a shortage in the cryptocurrency market, and a change will be needed before many investors take cryptocurrencies seriously.

Moving at a walking pace

On the surface, there was nothing particularly unusual about today's movements in the prices of major crypto assets. Bitcoin (CRYPTO: BTC) fell nearly 6% to just over $ 43.000. Ethereum (CRYPTO: ETH), meanwhile, fell 8% to around $ 3.425.

There was nothing fundamental that stood out to justify these steep moves. Rather, investor sentiment appears to hinge on the perception that cryptocurrency values ​​rise and fall with monetary policy, and the Fed squeeze is seen as a threat to further upward moves in Bitcoin and Ethereum.

Indeed, the near universal downward movement across the cryptocurrency realm provides proof of this view. If you look at the top 40 digital assets, you will see very consistent, almost step-one downward movements. The only two exceptions in the early afternoon were Cosmos (CRYPTO: ATOM) and Decentraland (CRYPTO: MANA), which gained ground.

Not all cryptocurrencies are created equal

This type of price movement is what is expected when investors don't see much distinction between different investments in a given asset class. The precious metal investors they are used to seeing some days when gold, silver, platinum and palladium all drop roughly the same rates in response to macroeconomic factors that affect them in a similar way. However, each market has its own dynamics, with supply and demand disruptions not necessarily moving completely in parallel.

The same should be true for cryptocurrencies. When Ethereum takes steps to extend the usefulness of its platform beyond what Bitcoin can offer, then we should see days when Ethereum goes up but Bitcoin goes down. Likewise, when smaller crypto projects find success, greater divergence should be seen between different digital assets, with potential rivals losing ground versus assets gaining adoption and fundamentally becoming stronger.

Risks involved unsustainable for many investors

To be honest, you can see some winners and losers shaking up when looking more at long-term performance. Ethereum's price gains outpaced Bitcoin's yields. Smaller tokens with stellar performance can be found that leave larger digital assets in the dust. However, much of this has to do with liquidity and the relative size of markets, both of which can amplify price movements.

Still, there is enough correlation between all crypto assets that investors cannot count on being rewarded for making smart calls on which cryptocurrency projects have the greatest chance of long-term success in their respective missions. This makes the risks involved unsustainable for many investors. But if the market matures to the point where you start to see clear divergences between winning and losing ideas, it could spark the interest of mainstream investors that many in the cryptocurrency arena have been waiting for for years.