Why Ethereum Was Creeping Higher on Monday
Key Points
However, official Iranian and U.S. reactions to a proposed ceasefire were hostile.
Consequently, that weekend rally in cryptos doesn't look likely to last.
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From Sunday mid-afternoon to late afternoon Monday, Ethereum (CRYPTO: ETH) was doing relatively well as an investment. Bolstered by cautious optimism regarding a potential wind-down of the Iran war, among other factors, Mr. Market was largely positive about the leading cryptocurrency's future. It was trading up by more than 3% over that stretch of time.
Tied to global events
Although Ethereum is considered by many to be a well-established cryptocurrency with above-average utility, it still falls into a class of investments that are quite risky. This is entirely justifiable, in my opinion, as nearly every digital coin and token has proven over time to be volatile, at times excessively so, compared to assets like stocks and (especially) debt instruments such as bonds.
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In times of economic and/or geopolitical strife, investors tend to trade out of risky plays in favor of those considered to be safer. That's what occurred at the start of the Iran conflict, and that's what largely motivated the Sunday-to-Monday rally.
This optimism arose over the weekend, on reports that a coalition of countries led by Pakistan, Turkey, and Egypt had drafted and sent a 45-day ceasefire plan -- which included a measure to open the Strait of Hormuz -- to both U.S. and Iranian officials. A concrete plan to halt the combat, however brief or fragile, is a potentially major step in ending the conflict.
Fighting words
Alas, that optimism started to fade later on Monday. Iran formally rejected the proposal, and in mid-afternoon, President Trump renewed threats to destroy infrastructure in the country if the Strait of Hormuz wasn't reopened by a deadline he previously set of tomorrow (Tuesday) at 8 P.M. Eastern Time.
Given that, I wouldn't expect that modest rally in Ethereum, or any other crypto that benefited from the weekend's bullishness, to last. This doesn't feel like an ideal time to be heavily invested in cryptocurrency, and while I wouldn't necessarily sell out of all holdings, I wouldn't be a buyer either. There's just too much uncertainty affecting risky investments just now.
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Eric Volkman has positions in Ethereum. The Motley Fool has positions in and recommends Ethereum. The Motley Fool has a disclosure policy.
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