The rout in coins and tokens was rather sudden.
The world’s key benchmark interest rates are about to get a haircut, so all things being equal, cryptocurrencies should be the flavor of the moment for investors. After all, when rates decline, the more speculative assets jump in popularity, hence the anticipated boon for digital coins and tokens.
Yet, the opposite was apparent as this trading week kicked off. There was little direct negative news affecting cryptos, still many of them were trading in the red when tracked from last Friday afternoon. Bitcoin Cash (CRYPTO: BCH) was in a nearly 8% slump over that stretch, while Stacks (CRYPTO: STX) was down by nearly 10% and Polygon (CRYPTO: MATIC) off by almost 11%. A few managed to swim in the black, but not necessarily by much; Sui (CRYPTO: SUI), for one, could only manage a sub-1% gain.
No news isn’t good news
Collectively, the crypto world is holding its breath in anticipation of news from this coming Wednesday’s Federal Open Market Committee (FOMC) meeting. The Federal Reserve (Fed) body will determine whether and by how much it will cut the Fed’s key interest rates.
There’s little reason for crypto investors to be nervous about this. Inflation, the boogeyman that keeps Fed officials awake at night, is clearly trending downward, and there has been plenty of pressure on the regulator to loosen its monetary strings. Fed officials have gone as far as to essentially promise a rate cut. The only speculation these days is by how much — many are assuming this will be a 50-basis-point shave, although a sizable minority is anticipating a 25-basis-point reduction.
Since there isn’t a lot of doubt in the collective investor mind that rates are about to be decreased, many might be thinking a cut is already priced into cryptocurrencies. Before the Friday slowdown, they were enjoying a bit of a rally, and as ever in the crypto world, a host of investors could be selling off to lock in recent gains. We should never underestimate the power of profit-taking, which can be rife in a volatile asset class like this one.
Watch those ETFs
Interestingly, the inflows to crypto exchange-traded funds (ETFs) were robust on Friday, with more than $263 million being injected into Bitcoin funds — the highest level since July 22, according to crypto news and analysis site Coindesk. This indicates that still-robust demand might be lurking under the sudden bear market, and a recovery — if not a rally — is in store for us if and when the FOMC announces its rate cut.
Eric Volkman has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin, Polygon, and SUI. The Motley Fool has a disclosure policy.