Why Altcoins Like Shiba Inu and Solana Were Sliding on Tuesday

An uninspired, fairly directionless cryptocurrency market was draining value from a wide range of altcoins on Tuesday. This wasn't quite a rout, but still, the general gloom hanging over various types of investments shaved the prices of quite a few of the less popular cryptos.

Shiba Inu (CRYPTO: SHIB), whose logo is a jolly dog, wasn't in a good mood with its nearly 5% decline from 4 p.m. ET. Solana (CRYPTO: SOL) wasn't faring much better with a more than 4% drop, while Litecoin's (CRYPTO: LTC) almost 6% loss was feeling heavy for investors.

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Trade fights and stagnant rates contribute to the bearishness

This really isn't the fault of those cryptos, or even the broader crypto market generally. For the most part, investors are sitting on the sidelines of many asset classes -- equities in particular -- on continued unease about how the current tariff spat between the U.S. and its major trading partners will play out.

If tariffs are imposed to any serious degree, they will surely affect at least several sectors of the U.S. economy (automobile manufacturing, for one, on the back of sharply increased prices for inputs from abroad). So for many would-be market players, now is a good time to wait and see how the drama unfolds.

If investors aren't bothering with stocks, bonds, or other classic financial assets, you can be sure they're avoiding the riskier plays like cryptocurrencies. Not surprisingly, three of the leading digital monies that set the pace for the market, Bitcoin, Ethereum, and Dogecoin, were all posting single-digit slumps late afternoon Tuesday.

Another factor in the general investor avoidance of coins and tokens is that the Federal Reserve's Open Market Committee is to meet on Wednesday to determine whether to make another cut to its key interest rates. The recent inflation readouts haven't been all that encouraging, leading many observers to predict that rates will stay at their current level.

All things being equal, lower rates encourage investors to take positions in assets considered to be relatively risky. It's arguable whether Bitcoin and Ethereum are overly dicey, given their rise and prominence, but we can say that nearly all altcoins fall into the high-risk category.

No quick cure

Much will depend on the Fed's Hump Day move (assuming it makes one, of course). Even if it does pull the lever on a cut, there's still that tariff question hanging over the global economy, which should continue to weigh on the value of cryptocurrencies and related investments. I don't see the current gloom lifting to any great degree in the immediate future.

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Eric Volkman has positions in Bitcoin and Ethereum. The Motley Fool has positions in and recommends Bitcoin, Ethereum, and Solana. The Motley Fool has a disclosure policy.