(Bloomberg) — Wednesday brought at least one positive development in the battered crypto space: Digital altcoins posted big rallies as all kinds of riskier assets rebounded following the Federal Reserve’s June policy decision.
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So-called altcoins, which are smaller and sometimes lesser-known currencies, surged as US stocks rallied on comments from the central bank chief that super-aggressive interest rate hikes could not necessarily be on the cards going forward, even as the Fed steps up. its fight against inflation. Cardano, Solana, and Dogecoin each added more than 6% Wednesday night in New York, with Polkadot gaining as much as 15%. Meanwhile, Bitcoin and Ether finished the day flat.
Fed policymakers raised interest rates by 75 basis points, the biggest increase since 1994, signaling that there won’t necessarily be a series of similar hikes in the future, though it could happen again. The S&P 500 closed 1.5% higher, its first positive session in six. The Nasdaq 100 rebounded 2.5%.
Although the losses in the crypto space over the past month have been hard to swallow, the removal of the excesses and sky-high speculation has been welcomed by many.
“The reality is that we need to see a capitulation where that ‘rookie’ fades away,” said Max Gokhman, chief investment officer at AlphaTrAI. “One problem with a community built on convoluted white papers at one end and nasty memes at the other is the nuance of things like monetary policy affecting how much fiat is lost to digital,” he said, adding that “we need to see the asset class evolve to a more mature state, and I think it is in the process of doing so.”
Crypto started falling late last year on expectations of a less accommodative Federal Reserve, with rising interest rates hurting the industry and its prospects. Last month’s collapse of the Terra blockchain and crypto lender Celsius Network Ltd.’s recent decision to halt withdrawals have also taken their toll, while a tweet this week from the co-founder of crypto hedge fund Three Arrows Capital fueled speculation of who had suffered great losses. Even long-term holders who have avoided selling so far are under pressure, according to researcher Glassnode.
All sorts of pockets within the space have been hit by negative developments amid the downsizing that wiped out hundreds of billions in value. Several crypto firms have announced layoffs and hiring freezes, with many market watchers expecting further price declines in the future.
“Cryptocurrencies are a risky asset. It’s an expression of people taking their place on the risk spectrum, whether they’re more risk averse or more risk seeking,” Wells Fargo Securities LLC’s Anna Han said in an interview.
Meanwhile, Michael Purves, founder and CEO of Tallbacken Capital, sees more declines ahead, at least for Bitcoin. “We continue to think the overall Bitcoin picture is bearish, and perhaps our $15,000 target is not bearish enough,” he wrote in a note. “However, in the short term, we recommend taking profits on short positions.”
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