Crypto investors no doubt spent much of this week fondly remembering the good old days, i.e., much of 2024, when their holdings rose in price more often than not. That’s because the past few days have seen the market for coins and tokens shrivel, with even some of the top names in the space booking double-digit losses.
According to data compiled by S&P Global Market Intelligence, Chainlink (LINK -0.31%), one of the more popular, high-profile utility tokens, lost almost 16% of its value across the week. Uniswap (UNI 2.75%) fared little better, booking “only” a 15% decline, while Bitcoin Cash (BCH 2.58%) investors could possibly console themselves with a relatively shallow 10% dip. Aave (AAVE -3.48%), meanwhile, tumbled by more than 19%.
The rate cut blues
At both ends of the week, several pieces of macroeconomic news and developments combined to make investors less enthusiastic about cryptocurrencies.
The first was the latest employment data from the Bureau of Labor Statistics (BLS). This is the most impactful jobs data set for many investors, and it indicated that the number of job openings in this country rose to 8.1 million in November. The October figure was 7.8 million. More job openings suggest that businesses are thriving overall, which is more likely than not to drive the economy even higher.
It’s also more likely to not only discourage the Federal Reserve (Fed) from cutting its key interest rates further, but actually increasing the risk of rate hikes. Crypto-heads dislike loftier rates, as they make “safety” assets like government bonds more enticing, and sap enthusiasm for the risky stuff (i.e., most, if not all, cryptocurrencies).
As if to hammer home this discouraging piece of news, on Thursday Michelle Bowman, a member of the Fed’s board of governors, described its latest rate cut in December as a last step in the regulator’s current monetary policy.
Additionally, she said, the Fed would be wise to “refrain from prejudging the incoming administration’s future policies.”
“Instead, we should wait for more clarity and then seek to understand the effects on economic activity, the labor market, and inflation,” Bowman added, in words that were hardly comforting to the many rate-cut fans throughout the cryptoverse.
Primed for better news
Digital coins and tokens are relatively volatile assets, so it’s hardly surprising that many slid at a double-digit pace on these developments. So now, the market is basically anticipating the likelihood of no rate cuts, at least in the foreseeable future. What’s good about that for crypto aficionados is that this sets up many cryptocurrencies for a nice, healthy bounce when more positive news (or Fed officer pronouncements) hit the headlines.
Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Aave, Chainlink, and Uniswap Protocol Token. The Motley Fool has a disclosure policy.
