Cryptocurrencies had another phenomenal week this week, driven by a rising stock market and falling interest rates. It's an unwinding of a lot of the factors that drove crypto lower in 2022 and early 2023.
According to data provided by S&P Global Market Intelligence, Near Protocol (NEAR 0.98%) led the way by climbing 45.7% from Friday's market close, Stacks (STX -1.11%) was up 33%, Solana (SOL 1.33%) jumped 25.3%, and Optimism (OP -1.76%) is up 41.1%.
The crypto rally continues
Macro trends have driven a lot of what we're seeing in crypto right now. Interest rates have fallen for nearly two months, as you can see below, and that has pushed investors into riskier assets. The stock market is up and high-growth stocks, which correlate with cryptocurrencies, are having a great end of the year.
10 Year Treasury Rate data by YCharts
It may seem odd that cryptocurrencies move based on the movements of stocks and bonds, but this has been the case since early in the pandemic. Cryptocurrencies often trade more like growth stocks than other financial assets, whether the industry wants to see it that way or not.
Crypto fund flows and regulation
The other thing investors are seeing right now is a change in what's called fund flows. Big investors who may have avoided cryptocurrency over the past few years are now getting more interested in the industry and they're finding opportunities in tokens for blockchains based on utility.
Near, Stacks, Solana, and Optimism are all built for doing more than just storing value and that's why they're benefiting today. Businesses are starting to test real-world applications like financial instruments and logistics tracking on the blockchain, so there's more big money seeing the value of the blockchain.
In addition, investors keep getting indications that a Bitcoin exchange-traded fund (ETF) is moving closer to reality as massive banks and the SEC discuss what the future is for these products. And if an ETF is approved it could allow millions more investors to get low-cost access to the crypto market, starting with Bitcoin and likely extending further to other cryptocurrencies.
The future of cryptocurrencies
The recent jump in cryptocurrencies is partly speculation and partly a real change in how the industry is being viewed. Blockchains with real utility, low cost, and fast transactions are benefiting more than the old blockchains or tokens that were built on memes and hype. That's good news for the long-term trajectory of the industry.
While the flow of funds into crypto is positive, investors should be cautious buying just because the industry has been moving higher. There are still a lot of risks and buying tokens with a real ecosystem of users and developers will be critical for long-term success.
