Altcoins
Why many Altcoins faded this week
Friday’s selloff capped a gloomy week, with many concerned about the state of the macroeconomy.
Sooner or later, even the most valued financial assets obey gravity, no matter how high they rise. This week we saw a decline in a series of altcoins that have recently been soaring, as a higher-than-expected inflation rate and profit-taking hit the cryptocurrency market.
Over the five trading days, according to data compiled by S&P Global Market Intelligencelate Friday afternoon, both Ghost (FTM 1.82%) and Theta Network (THETA 3.84%) were down almost 6% since the start of the week. Bittenseur (CRYPTO:TAO) fared less well, with a drop of more than 8% over the period.
Wild inflation
One of the big monsters in the room in recent days was inflation, which has been higher than many expected – that beast might take some time to tame, after all. On Wednesday, the government’s Bureau of Labor Statistics reported that inflation in March rose 3.5% year-on-year, 0.3 percentage points higher than February’s figure and significantly above estimates for many economists.
As a result, there is much less talk about the interest rate cuts that Federal Reserve (Fed) officials hoped to begin implementing this year.
The prospect of our current, relatively high rates lasting longer than expected is giving crypto investors pause. Lower rates make boring but safe investments more attractive, as instruments such as bonds pay higher interest and become more competitive with risky items. Despite their growing popularity and the belief by some that they are ideal stores of value, cryptocurrencies should ultimately be considered high risk.
Sometimes it can take one or two trading days for discouraging news to impact the market. The following Friday saw a broad sell-off of many crypto assets. This includes the Pied Piper behind which every altcoin jumps, Bitcoin. On this day alone, the price of Bitcoin headed south by late afternoon, to a level close to 5%. And when Bitcoin experiences a decline, your favorite altcoin is likely heading south as well.
Good deals ahead?
Some economists speculate darkly that we are in for more inflation “surprises.” What’s not helping at the moment is the seemingly insatiable demand for housing; prices in this category increased significantly in March.
Where does that leave cryptocurrency? Coins and tokens could be about to take a reckoning, and we shouldn’t be surprised to see a correction period as investors get used to the current situation. This could, however, provide a good entry point for crypto bulls. If so, we should keep an eye on altcoins, as the more volatile ones could see outsized price gains during a rally.
Eric Volkman has positions in Bitcoin. The Motley Fool posts and recommends Bitcoin. The Motley Fool recommends Theta Token. The Mad Motley has a disclosure policy.