Why Major Cryptocurrency Assets Like Bitcoin Sank Today | The Motley Fool

What happened

Cryptocurrencies looked ready to stumble into the weekend on Thursday. Many were hit with investor sell-offs, and while few of these were drastic, they did drain value from the affected coins and tokens. 

Bitcoin (BTC -7.53%), as ever, set the pace. The most popular cryptocurrency by far was down by nearly 4% in price over the preceding 24 hours; ditto for fellow high-profile coin Ethereum (ETH -6.01%). Crypto-adjacent assets weren't spared, either; for example, Riot Platforms (RIOT -10.61%) stock closed the day down almost 11% in price.

So what

Wise crypto investors keep a sharp eye on the actions and pronouncements of the Fed, as monetary policy can have a great impact on digital money. 

That's why many were disquieted by the minutes of the latest Fed policy meeting in July, which were published Wednesday afternoon. To perhaps issue a painful reminder, that meeting was the one where the regulator enacted its most recent key interest rate hike, to a more than 22-year high.

The minutes indicated that Fed officials are willing to push rates even higher to keep a lid on inflation, the current macroeconomic bugaboo. While there have been indications that this scourge is being tamed, some at the Fed believe it could flare up again. With that most powerful tool, the rate hike, at its ready disposal, the Fed would surely be willing to use it at the next worrying sign of ballooning prices.

Why do crypto investors care or worry about this? Broadly speaking, higher interest rates make the less risky assets (such as bonds) more attractive; typically, an investor gets paid more with the climbing rates by holding such investments. Consequently this reduces the attractiveness of the riskier stuff -- stocks from the more speculative companies, for example... or cryptocurrencies.

To be sure, coins like Bitcoin and Ethereum have established themselves to the point where they are considered viable alternatives to traditional financial instruments.

But they can still be volatile and swing dramatically in price. They haven't entirely shed their reputation among some investors as "funny money" not properly anchored by underlying assets (or, in the case of the U.S. dollar, the full faith and credit of the American authorities and financial system). 

Now what

Bad news often comes in bunches, and for crypto bulls the Fed worries were compounded by the awkward launch of an ambitious new blockchain. This is the Shibarium, a platform devised by Shiba Inu's developers that had a high-profile launch Wednesday afternoon. Yet there were notable hiccups in the launch, with delays and other issues being reported by users and on crypto media sites.

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

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