After an impressive few weeks, the value of cryptocurrencies fell sharply on Thursday. The biggest market news was Federal Reserve chair Jerome Powell saying that he expected to support a short-term interest rate increase at March’s Fed meeting, which some investors may have thought was currently off the table.
Powell told lawmakers yesterday that he would support a small increase in interest rates at the next Federal Reserve meeting, which is in two weeks. His comments were taken as a negative for risk assets and some growth stocks, which have risen in the last few weeks as geopolitical turmoil and slower growth from businesses led to speculation that the central bank would put off its expected hikes. But Powell is more concerned about inflation right now, which could end up getting out of control if rates stay low for too long.
While the Federal Reserve controls short-term interest rates through its bond purchases, it has less impact on longer-term rates that are determined by the market. That’s why it’s interesting that mortgage rates, which are usually tied to the 10-year treasury rate, are down because investors see slowing growth for the economy.
Some of the crypto euphoria about demand in Russia and Ukraine may be wearing off too. There have been multiple reports over the last few days that millions of dollars in cryptocurrency are flowing into Ukraine while Russians are trying to convert rubles to cryptocurrency to get money out of the country. This may indeed be taking place, but volumes of a few million dollars aren’t enough to sustain a move in the multi-trillion-dollar crypto market for long.
On days like today, perspective is always important. While cryptocurrencies are down today, they’re still up big over the past week. Ethereum is up 16.4%, Solana is up 13.5%, and Cardano is up 12.2% in the last 7 days, despite today’s drop.
I also don’t see any news that fundamentally undermines the long-term investment thesis in cryptocurrencies, especially those building utilities like the ones mentioned here. Developers are still building, more users are coming into the market, and long-term the future is still bright.
Chalk up today’s move as volatility in the market and in cryptocurrency anything can drive volatility. Over the next few weeks and months it’s likely there will continue to be wild swings as interest rates rise and news about Russia’s invasion of Ukraine continues to come out, so prepare for more volatility ahead.
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.