What happened
Two of the top altcoins, Ethereum ( ETH -0.94% ) and Dogecoin ( DOGE -1.10% ), weren’t viable alternatives for investors on Friday. As of late afternoon that day, the value of the former had slid by 2% and the latter by just over 1%, but that was expected given recent pronouncements by a high-level financial regulator.
So what
Cryptocurrency investors were anxious about Federal Reserve chairman Jerome Powell’s comments Thursday that the central bank will have to be more active in its efforts to tame inflation. Specifically, he said that a half-point rate hike from the Feds is a definite possibility next month.
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Whenever talk comes around to subjects such as inflation and rate hikes, investors tend to bail from assets considered to be more speculative and put money into ones considered to be defensive. At the end of the day, despite the zeal of many cryptocurrency fans, coins like Ethereum and Dogecoin are generally included in the speculative bucket.
At least Ethereum and Dogecoin investors are in good company; nearly all of the most important altcoins were also down in the trailing 24-hour period. The same goes for the seemingly eternal leader of the cryptocurrency pack, Bitcoin, which was suffering a more than 3% drop.
Now what
I don’t think the current sag in token prices is going to last; investors will adjust to the reality of substantial rate hikes and the war against inflation. And any depression in crypto prices tends to bottom out before long; crypto bulls are very fond of pouncing on buy-on-weakness opportunities, and altcoins are always juicy targets at such moments.
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.