The cryptocurrency winter is thawing and some of the market's biggest tokens came to life just last week. There wasn't any major industry news, but it seems like a big mood change is occurring across the cryptocurrency world.
According to data provided by S&P Global Market Intelligence, bitcoin (btc 1.94%) has risen 13.6%, Ethereum (ETH -0.08%) has gained 12.8%, and Dogecoin (DOGE 5.15%) has increased 20.2% in the last seven days. And there appears to be no end in sight to this momentum.
Is the cryptocurrency winter over?
There have been a number of catalysts for the cryptocurrency market lately. The bullish move in the stock market has been a very risky move that has generally resulted in cryptocurrencies going up as well.
Airdrops, or gifting tokens to wallets on the blockchain, have also added hundreds of millions of dollars in liquidity to the market, and that is driving up the values โโof the most well-known tokens.
Cryptocurrencies can be a very sentiment-driven market, and traders are seeing plenty of reasons to be optimistic right now with institutions and individuals pouring money into cryptocurrencies after nearly two years of money leaving the industry. On top of that, interest rates are falling and growth investors are becoming more optimistic, which correlates with the rise of cryptocurrencies in 2021.
More work ahead
For momentum to continue, cryptocurrencies must develop more use cases and ways to generate value than just trading. This is being done in many areas, including payments and decentralized financial products. But many tokens and airdrops are simply following the hype cycle without knowing where the long-term value will come from.
I think the current state of cryptocurrencies is a lot like the fear of missing out and "you only live once" trading that occurred during the pandemic. But this time the market is much better known and larger institutions are starting to get involved.
What investors should be wary of is that the market could crash again if the economy slows and interest rates don't fall as quickly as expected. This cryptocurrency rally is not necessarily based on a solid foundation of improved regulations and better use cases; It's more about speculation.
While I am optimistic about the future of blockchain, I do not believe these movements in some cryptocurrencies are sustainable. Many tokens have little use other than trading, and their long-term prospects can ultimately cause values โโto fall and investors to lose their money. There are more established tokens like Bitcoin and Ethereum that have proven to be stores of value or a place where there is development, but I wouldn't take the rise of altcoins as a sustainable jump. After a great week and an even better month, it may be time to make some crypto profits.
Travis Hoium has positions in Ethereum. The Motley Fool holds and recommends Bitcoin and Ethereum. The Motley Fool has a disclosure policy.
