Saturday, 11 January 2025
by BD Banks
The altcoin momentum that drove many cryptocurrencies sharply higher in the second half of 2024 has reversed in 2025 and values are dropping like a rock. This week alone, many altcoins were down double digits and the slide may continue as the speculative bubble bursts.
According to data provided by S&P Global Market Intelligence, as of 10 a.m. ET on Friday, Cardano (CRYPTO: ADA) is down 15.1% in the past seven days, Solana (CRYPTO: SOL) is off 14.7%, Aptos (CRYPTO: APT) has fallen 7.6%, and Polkadot (CRYPTO: DOT) has dropped 16.8%.
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At the end of the day, cryptocurrencies are still a speculative asset. As a result, their values go up when interest rates go down and down when interest rates go up.
And what drives rates up is a strong economy, which is what we’re seeing today. Data released this week included ISM Service data, which across the board showed companies expecting to expand this year at a higher level than economists expected. Job openings measured by the Bureau of Labor Statistics also numbered 8.1 million, above the 7.8 million estimate.
Federal Reserve governor Michelle Bowman also said on Thursday she expects the December interest rate cut will be the “final step” in the easing interest rates. The worry is that further cuts could fuel inflation and that’s something the Fed will likely want to get out in front of.
In a higher interest rate environment, traders and investors typically flee to “safer” assets that are now generating yield, selling riskier assets in the process. Altcoins fall into this category.
Cardano, Solana, Aptos, and Polkadot all aim to provide a platform that’s fast and cheap for developers to build applications that use the blockchain. In turn, the idea is that the token itself will be used to pay for transaction fees and potentially digital goods and services.
This concept may get a boost in the U.S. if the incoming Trump administration eases enforcement and lays out clear rules for the industry. Speculation this was coming is what drove gains late in 2024. But speculation is now meeting reality and the value of these tokens has gone up and without an increase in utility or value generation, there can be a sell-off.
One of the trends clearly taking hold is the rise of stablecoins, which could be used on any of these blockchains, but drive very little value to the tokens themselves. And as stablecoins proliferate, I think that could lead to a rise in blockchain usage coinciding with a drop in underlying blockchain cryptocurrency values.
A simpler explanation may be that investors were buying the rumor of crypto’s rise after the election and now they’re selling the news as Trump’s move to the White House gets closer.
There’s a lot of potential ahead for the crypto industry, but it needs to show value creation and pass legislation in Congress, which may be easier said than done.
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Travis Hoium has positions in Solana. The Motley Fool has positions in and recommends Aptos, Cardano, and Solana. The Motley Fool has a disclosure policy.