Why Chainlink, Avalanche, and Mara Holdings Jumped (and Then Dropped) This Week

The crypto market was volatile this week as investors tried to make sense of the current economic environment and risk tolerance of the market. Tariffs were announced for the auto industry, which a few weeks ago may have crushed the market, but overall the news was met with a bit of a shrug. There were some big movers in crypto, though.

According to data provided by S&P Global Market Intelligence, Mara Holdings (NASDAQ: MARA) jumped as much as 8% and was up 6.9% for the week in early trading on Friday. Chainlink (CRYPTO: LINK) was up as much as 12.9% while Avalanche (CRYPTO: AVAX) rose 19.2% at its peak. The two cryptocurrencies are up 2% and 7.9% respectively, as I write this, compared to last Friday's stock market close.

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The good news

Mara announced it has hired PwC as its auditor. This isn't necessarily the biggest news, but after a material weakness in the company's financials was found in 2023, this could bring some more calm to the market.

Chainlink has recovered from early March lows on hope that it will be a valuable blockchain in the age of stablecoins. It's a decentralized blockchain oracle network, so for financial transactions it could be extremely valuable as stablecoins become more widespread. That said, it's not entirely clear whether significant value would flow to the token itself even if stablecoin usage continues to climb.

The trading volatility of crypto

Avalanche has fallen over 50% from its high a few months ago and bounced off those lows this week. But that may not be a long-term trend. The token hasn't gotten widespread adoption by users or developers and this week's move is more likely natural volatility of the market.

While big moves are normal, it's always important to put crypto moves into context. The surge in values in November and December were driven by the election and hope for both better regulations and an improved economy. The moves over the past few weeks have been after regulators were changed, law enforcement actions were dropped, and there seems to be more crypto clarity in Washington D.C.

But the economy isn't in good shape and that's more important to crypto than you might think.

A headwind for crypto

The bad long-term news is the economy seems to be in a worse position than it was a few months ago.

The news out on Friday was that inflation was hotter than expected in February with the core PCE (personal consumption expenditures) index up 2.8%, higher than expected, and January's core PCE was revised higher as well.

Crypto may be sold as an asset class that isn't affected by the economy and interest rates, but it is. When the economy is good and people have money to spend on speculative assets, crypto is a beneficiary. But when inflation rises and the Fed increases interest rates, crypto typically drops.

That's the fear after the higher PCE numbers today. If the Fed has to raise interest rates at the same time consumers are pulling back on spending, it'll likely mean less invested in crypto. I think the bounce for these tokens this week may be short-lived.

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Travis Hoium has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Avalanche and Chainlink. The Motley Fool has a disclosure policy.