The weekends have not been kind to cryptocurrencies in recent months, but the last weekend of January 2022 is off to a good start. In the past 24 hours, the value of every major cryptocurrency has increased in value Saturday morning at 8:30 a.m. ET.
Ethereum (CRYPTO:ETH) was the most notable driver, climbing as high as 7.8% and currently trading up 7.3%. Solana (CRYPTO: GROUND) also made a strong rally, jumping 10.5% and currently advancing 9.5% in the past day. avalanche (CRYPTO: AVAX) is the other big mover, jumping up 11.8% and currently trading at its 24-hour high.
The big topic this week was the Federal Reserve and US government regulations. After China banned cryptocurrencies and Russia started considering doing the same, the United States is the next big country to think about how it wants to deal with this emerging market.
White House officials said they plan to release a report on potential government regulation of cryptocurrencies as early as next month. Of course, this brings uncertainty to the market, which has caused much of the selling over the past few months.
The Federal Reserve hasn’t helped, saying this week that it will likely start raising short-term interest rates in March and indicating that we could have several rate hikes this year to fight inflation and an economy potentially overheated. This news has hurt growth stocks and cryptocurrency values have been correlated with growth stocks for months, so it’s no surprise that crypto values have fallen over the past few weeks. But the sale of growth stocks has slowed as value-seeking investors arrive, and that may be the case with cryptocurrency stocks as well.
To combat this political pressure, cryptocurrency companies and venture capital funds are staging big legal fights against regulations and lawsuits. Ripple, which is a cryptocurrency payment company that launched XRP, won legal battles against the SEC this month and continues to fight the lawsuit from the regulator. Venture capitalists like Andreessen Horowitz have also been lobbying hard to help shape cryptocurrency regulation. But those efforts could take years, and the uncertainty in the meantime is hurting cryptocurrency values.
In another story, Goldman Sachs warned clients that cryptocurrencies could act more like growth stocks than inflation hedges as mass market adoption picks up. This is a trend that has been going on for many months, and most cryptocurrencies have acted much more like growth stocks than market hedges for investors.
Political uncertainty in the United States continues to be a cloud over cryptocurrencies, which likely means crypto volatility will be here for the foreseeable future. But this is nothing new for cryptocurrency investors.
What will be important to keep an eye on is the impact that regulation will have on the underlying innovation taking place in cryptocurrencies. New businesses and funding structures are growing on crypto, and stifling that innovation would be bad for both the economy and crypto stocks.
Market sentiment today is up, but volatility as the rules evolve will likely continue. Beware of short-term purchases.
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Travis Hoium owns Ethereum and Solana. The Motley Fool owns and recommends Ethereum. The Motley Fool has a disclosure policy.
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