What happened
Monday was a bit of a strange trading day for cryptocurrencies as values dropped most of the day Sunday and then bounced back on Monday morning. So, depending on what time you’re looking at crypto prices, value may be down or up over the last 24 hours.
Polkadot (CRYPTO:DOT) was one of the notable moves, falling as much as 7% in the last 24 hours but trading 1.7% higher over that time as of 2 p.m. ET. XRP (CRYPTO:XRP) was down 4.8% and is now off only 0.9%, while Crypto.com Coin (CRYPTO:CRO) fell 6.7% and is now down 1%, and Theta Network (CRYPTO:THETA) fell 7.9% and is currently down 1.8%.
Image source: Getty Images.
So what
There are a number of factors converging on the crypto market today. The first is the fact that crypto values have been dropping for a couple of months and some of the selling was panic-selling or driven by liquidated positions on exchanges. As that short-term pain wanes, values can start to slowly come back to a more normal trading state and that seems to have been happening over the weekend as values stabilized and started climbing late on Sunday.
As stock markets opened on Monday, investors began piling into higher-volatility stocks like growth stocks, which have generally been correlated with cryptocurrencies the last few months. As of 2 p.m. ET the Nasdaq Composite is up 2.4% while the S&P 500 is up 1.2% and many growth stocks are up double digits. That explains the bounce in crypto trading since U.S. markets opened.
Another positive sign today was news that crypto exchange FTX has raised $400 million at a $32 billion valuation, showing the private markets are still pouring money into the industry. FTX is one of the biggest crypto exchanges in the world and if there was any fear of a drop in activity as valuations have fallen you wouldn’t be able to tell from this deal.
Now what
Volatility is once again the name of the game in cryptocurrency, but there seems to be some calm in the markets right now. Investors now have more clarity on what the Federal Reserve is going to do in coming months with multiple short-term interest rate hikes expected in 2022.
We are also getting a better idea of what earnings are looking like as more companies report fourth-quarter 2021 results. Growth has been strong among technology stocks yet supply chain challenges remain across the market. If values fell because of earnings uncertainty, it makes sense that they’re stabilizing and even recovering now that investors know results should be pretty solid.
What we don’t know is the impact of the Federal Reserve starting to pull back its bond buying and even selling some assets on its balance sheet. Assets like cryptocurrencies have been helped tremendously by the influx of money into the market and that may not be pulled back. It will take years for the Federal Reserve to fully pull back its liquidity, but that could be a headwind for crypto values in coming months and quarters. So, stay tuned for more likely volatility ahead, even after today’s recovery.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.