It was a fine day to buy high-risk financial assets.
There are no prizes for guessing the root of Thursday’s cryptocurrency rally. As much of the investing world is well aware, the big market-shaking news item was that the Federal Reserve (Fed) cut its key interest rate by 50 basis points the day before. And, as usual with such moves, this spurred a gold rush into relatively risky financial assets like digital coins and tokens. Compounding that, cryptourrencies effectively received a seal of approval from one of this country’s most prominent politicians.
It almost seemed as if the crypto market was having one of those throw-a-dart-and-hit-a-winner days. Many altcoins joined a rally that saw widespread double-digit gains. These happy marchers included Aptos (APT 6.37%), up 15% in early-evening trading, Solana (SOL 4.60%) with an 11% gain, and Avalanche (AVAX 3.49%), advancing nearly 14% higher. The often-maligned meme coin segment wasn’t left out, either; Pepe (PEPE 3.27%) had booked a more than 11% increase.
Cryptos trumped on Thursday
A Fed rate cut was entirely expected throughout the investing world. However, opinions about how deep the cut would go varied among investors and analysts. Many were expecting a more cautious move by the regulator; a level of 25 basis points was a common guess. The 50-basis point reduction was the maximum in quite a few instances. So for lots of investors, the actual cut when announced was a pleasant surprise…and worthy of a dive into the more speculative corners of the financial markets.
The deeper-than-some-anticipated modification isn’t going to stop there, some believe. Based on pronouncements from some Fed officials, certain market-watchers are convinced that the chop indicates the start of a continuing, aggressive move to reduce rates now that inflation appears to be fading away. For believers in this hypothesis, that’s all the more reason to load up on the risky stuff.
Speaking of not entirely expected moves, cryptocurrencies of all stripes also benefited from a top politician’s use of digital money. News broke Wednesday that no less a personage than former president and current office seeker Donald Trump used Bitcoin to make a purchase in a New York bar on Wednesday.
In every famous politician’s move there is calculation, of course. Trump and his running mate, crypto advocate J.D. Vance, are likely aiming to capture the vote of passionate coin and token users/investors. As a voting bloc this group is probably rather small, so it’s probably not a make-or-break bunch in the upcoming election. Regardless, Trump’s move raises the profile of all cryptocurrencies, and possibly helps to legitimize them as (somewhat) practical methods of payment.
Short-term sugar high?
I doubt the rate cut rally will last. If anything, cryptos in the coming days will probably either trade sideways or slightly down in the absence of any market-making news. Many beneficiaries of the reduction-fueled increases are sure to take profits, after all. It might just be worth an investor’s while to consider short-selling some of the less prominent coins or tokens.
Eric Volkman has positions in Bitcoin. The Motley Fool has positions in and recommends Aptos, Avalanche, Bitcoin, and Solana. The Motley Fool has a disclosure policy.
