What happened
Weekends have not been kind to cryptocurrencies the last few months, but the final weekend in January 2022 is starting off on the right foot. Over the last 24 hours, the value of every major cryptocurrency is up as of Saturday morning at 8:30 a.m. ET.
Ethereum (CRYPTO:ETH) was the most notable mover, climbing as much as 7.8% and currently trading 7.3% higher. Solana (CRYPTO:SOL) also made a big recovery, jumping 10.5% and currently moving 9.5% higher in the last day. Avalanche (CRYPTO:AVAX) is the other big mover, jumping as much as 11.8% and currently trading at its 24-hour high.
Image source: Getty Images.
So what
The big topic of this week was the Federal Reserve and regulations from the U.S. government. After China banned cryptocurrencies and Russia has begun contemplating doing the same, the U.S. is the next big country to consider how it wants to treat this emerging market.
White House officials say they plan to issue a report on potential government regulation of cryptocurrencies as early as next month. Of course, that brings uncertainty to the market, which has caused much of the sell-off in the last few months.
The Federal Reserve hasn’t helped, saying this week that it would likely begin raising short-term interest rates in March and indicating we may have multiple rate hikes this year to combat inflation and a potentially overheating economy. That news has hurt growth stocks and cryptocurrency values have been correlated with growth stocks for months, so it’s no surprise that crypto values were down over the last few weeks. But the growth-stock selling has slowed as investors looking for value come in, and that may be the case with cryptocurrency values as well.
To combat this policy pressure, cryptocurrency firms and venture capital funds are mounting big legal fights against regulations and lawsuits. Ripple, which is a cryptocurrency payments company that launched XRP, won some legal battles against the SEC this month and continues to fight the regulatory body’s lawsuit. Venture firms like Andreessen Horowitz have also put together big lobbying efforts to help mold cryptocurrency regulation. But these efforts could take years, and the uncertainty in the meantime is hurting cryptocurrency values.
In another news, Goldman Sachs warned its clients that cryptocurrencies may act more like growth stocks than inflation hedges as mass-market adoption picks up. This is a trend that’s been taking place for many months, and most cryptocurrencies have acted a lot more like growth stocks than market hedges for investors.
Now what
The policy uncertainty in the U.S. continues to be a cloud over cryptocurrencies, and that likely means crypto volatility will be here for the foreseeable future. But that’s nothing new to cryptocurrency investors.
What will be important to keep an eye on is the impact regulation will have on the underlying innovation taking place in cryptocurrencies. New businesses and financing structures are growing up on crypto, and stifling that innovation would be bad for both the economy and crypto values.
Today’s market sentiment is up, but the volatility as rules evolve will likely continue. Beware of buying into any short-term moves.
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.