Why Altcoins Were Sliding Again Today

Are you eager for rate cuts to juice the value of your digital coins and tokens? You might have to wait a while for them to come.

This isn’t shaping up to be a banner week for crypto, as some of the top altcoins in the space lost value Tuesday. A pronouncement from a top Federal Reserve issue dampened sentiment, which was already sinking following the recent cryptocurrency rally.

That being said, the Tuesday losses were, by and large, not massive. Bellwether meme coin Dogecoin (DOGE -1.71%) was down by more than 3% in late afternoon trading, while the theoretically more serious utility coins Chainlink (LINK -1.88%) and Bitcoin Cash (BCH -4.11%) shed a respective 2% and 4%. Aptos (APT 2.13%) was also in negative territory, but barely, as it was off 0.1%.

The Fed talks, and the crypto world listens

The bad guys, if you will, in this story are Fed Chair Jerome Powell and Vice Chair Philip Jefferson. On Wednesday, both strongly indicated that the likeliness of the central bank cutting its key interest rate was dropping.

In remarks at a Washington, D.C., event, Powell said, “The recent data have clearly not given us greater confidence and instead indicate that it’s likely to take longer than expected to achieve that confidence.”

Separately, Jefferson opined that the Fed should keep its powder dry should inflation remain persistent. In a separate event, he said, “The job of sustainably restoring 2% inflation is not yet done.”

That’s the general mood on interest rates these days from the Fed and other government officials following the latest data on inflation, which, according to the Bureau of Labor Statistics, rose by 3.5% in March. Unhappily for rate hawks, that was above the typical economist forecast and represented a notable uptick from the February number.

That wouldn’t necessarily be discouraging in and of itself, but only a few months ago, hopes were much higher. At that point, following developments with inflation that were actually positive, Fed officials stated that they aimed to make not one, not two, but as many as three rate cuts over the course of this year.

Injurious inflation

The Fed’s key interest rates are not the be-all and end-all for crypto investors but are nevertheless crucial. When rates climb, so too do the safest securities on the market (considered to be government bonds).

When safety plays become more attractive, the market as a whole tends to sell out of the riskier assets. In years past, this was tech stocks; these days, cryptos fit the bill. And the less utility a particular cryptocurrency has, the more downside potential opens up below it. (Attention, Dogecoin and other meme coin investors!)

Many crypto bulls will continue to monitor developments with inflation. The battle against it, after all, might be longer and more difficult than many expected.

Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chainlink. The Motley Fool has a disclosure policy.

[colabot3]

Leave a Comment