Why Altcoins Had a Rough Week

Source The Motley Fool

Cryptocurrencies had a tough week as the conflict in the Middle East intensified and traders began to doubt the number of interest rates baked into the forward curve. The price of Bitcoin, viewed as a bellwether for the industry, had fallen 8.6% as of mid-day Thursday.

The price of meme token Shiba Inu (CRYPTO: SHIB) crashed nearly 24%. Meanwhile, the price of XRP (CRYPTO: XRP) fell nearly 13%, and Solana (CRYPTO: SOL) was down close to 16%.

Geopolitical and macro issues

Crypto tokens responded poorly to escalating tensions in the Middle East this week, with Iran launching 200 ballistic missiles into Israel in response to the country's limited ground invasion of Lebanon against the militant-backed group Hezbollah. Israel vowed to respond to Iran's attack. As of late morning Thursday, Israel had launched air strikes in Southern Beirut, targeting Hezbollah's intelligence headquarters.

What does all this have to do with crypto? Well, Iran has one of the largest oil reserves in the world, so further conflict in the region or a hit to Iran's oil production or associated oil equipment could impact the global oil market. Oil prices have been rising all week, and WTI crude oil, a benchmark for U.S. oil prices, had risen nearly 4.3% at around 11:30 a.m.

Higher oil prices have pushed the U.S. dollar index up nearly 1.5% over the last five days, approaching $73 per barrel. Some traders are betting on oil prices reaching $100 per barrel or even higher. Cryptocurrencies are viewed as an alternative to mainstream currencies and have historically performed better with a weaker dollar.

In other news, traders are paring their views of how much the Federal Reserve will cut interest rates. Earlier this week, the majority of traders were betting on an additional 75 basis points of rate cuts this year and for the federal funds rate to potentially fall below 3% by the end of 2025.

Today, while still in the minority, more and more traders see the Fed making only 50 basis points of cuts in its final two meetings of the year. A slight majority now expect rates to end 2025 above 3%. Higher interest rates typically result in a higher dollar.

In token-specific news today, the Securities and Exchange Commission (SEC) is appealing a court decision that said XRP was not a security when Ripple, the creator of the token and network, sold XRP in 2012. The SEC had sued Ripple and the company's former founders for selling unregistered securities.

Many stakeholders watched the case closely because if XRP had been deemed a security, many other cryptocurrencies would have been as well. Securities are regulated by the SEC, which many believe would subject crypto to a much tougher regulatory regime, so stakeholders are hoping the SEC's appeal will be unsuccessful. On a more positive note for XRP, the crypto asset manager Bitwise reportedly took the first step yesterday in a process that could lead to the launch of an exchange-traded fund tracking XRP.

The outlook moving forward

Crypto investors will want to monitor developments in the Middle East and how they may impact oil prices, as well as the forward curve, both of which could impact crypto prices.

XRP and Solana present interesting technology and use cases, and I think it's OK if investors want to dip their toes in the water. However, I would not advise taking a significant position right now due to the volatility that altcoins could experience. Rather, I think the best crypto play is to simply buy the dip on Bitcoin, which I see a much clearer long-term path for.

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Bram Berkowitz has a position in Bitcoin. The Motley Fool has positions in and recommends Bitcoin, Solana, and XRP. The Motley Fool has a disclosure policy.

Disclaimer: For information purposes only. Past performance is not indicative of future results.
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