Why Crypto Altcoins Plunged This Week

Crypto has been hot in recent months amid hopes that the Trump administration would ease regulations on the industry and provide clarity about blockchain to developers and entrepreneurs. This drove up prices but also caused a lot of speculation and FOMO in the crypto market. Some of that reversed this week as all major coins, including altcoins, lost significant value.

According to data from S&P Global Market Intelligence Dab (POINT 1.72%) is down 21.6% over the past week as of 1:30 p.m. ET on Friday. avalanche (AVAX 0.64%) fell by 23.3%, Internet computer (ICP 0.62%) is down 22%, and Near protocol (VICINITY 1.36%) is 24.2%. This could be just the beginning of market volatility ahead of the start of a two-week period where volume is likely to be low.

The Fed’s cuts

The biggest driver of this week’s moves was the Federal Reserve, which cut interest rates by a quarter point on Wednesday. However, this was met with skepticism from investors, who pushed up long-term interest rates. Long-term interest rates determine the valuation of growth stocks and speculative assets like cryptocurrencies, and that’s why values ​​have fallen this week. Ironically, cryptocurrencies still move in correlation with growth stocks and do not represent a hedge against the market or inflation.

What the market saw as worrisome in the Fed statement were the forecasts for higher inflation and higher unemployment in 2025, which would indicate a weakening economy. The value of cryptocurrencies has been driven higher by excess liquidity in the market and investors’ optimism about the future of the economy. A reversal of this view will penalize cryptocurrencies even more than stocks.

The future of blockchain

What investors need to see is more utility and innovation on the blockchain, which will ultimately increase the demand and value of these altcoins. The entire purpose of building a low-cost blockchain with smart contracts, decentralized finance, and other useful features is to create value for the entire ecosystem. There have been developments on this front over the last three years, but more needs to be done and not every blockchain will benefit equally.

Speculation that has driven values ​​over the past two months will no longer be the fundamental driver, and as the hype dies down, so too could valuations.

A long-term perspective is still required when it comes to cryptocurrencies

There are still many potential tailwinds for cryptocurrencies, but they may take some time to materialize. I think clear regulations could enable more innovation in blockchain and thereby create significant added value. There is also the possibility that other digital assets will be listed as exchange traded funds (ETFs) or on central exchanges.

I think the future is still bright for the crypto industry, but the upward moves of the last few weeks may not have been sustainable. A lot of money has flowed into the industry in the hope that regulatory changes would increase value, but any real impact could be months or years away. A decline is normal and with volume likely to be low over the holidays, volatility will also be the norm for altcoins.