The crypto market came to life this week as investors moved up the risk curve ahead of earnings season. A low inflation reading certainly helped and high-beta stocks and crypto were some of the market's biggest beneficiaries.
According to data provided by S&P Global Market Intelligence, Stacks (STX 1.26%) was one of the week's biggest winners, climbing 22.7%. Arbitrum (ARB 0.52%) was up as much as 13.7%, and Bittensor (TAO 2.47%) rose 13.3% at its peak. The three tokens are up 20.6%, 12.6%, and 8.5% for the week as of 4 p.m. ET on Friday.
Inflation gives crypto a boost
The most tangible news item this week was a Consumer Price Index (CPI) reading that showed inflation suddenly stopped in June. According to the Bureau of Labor Statistics, prices were down 0.1% month over month and rose just 3% year over year.
This doesn't directly impact the crypto markets, but valuations are often correlated with the stock market and stocks tend to rise when interest rates fall and fall when interest rates rise. Lower inflation likely means the Federal Reserve will be willing to lower short-term interest rates in 2024. The market reacted by pushing the 10-year Treasury rate down 14 basis points over the past month.
One of the ironies of cryptocurrencies is they are supposed to be a hedge against inflation, but in reality they trade more like growth stocks.
Utility and crypto's ups and downs
Most of the day-to-day moves in the crypto market are based simply on speculation, but developers are trying to build real businesses with these tokens in blockchain. We've seen some progress on that front not only in 2024, but even this week.
Stacks, a Layer 2 on the Bitcoin blockchain, has gotten attention as Bitcoin rose and now has 53 million STX in total value locked, up from 44.6 million a month ago.
Arbitrum DAO approved diversifying its treasury this week into $25 million of stable, liquid, and yield-bearing products. This is intended to keep the blockchain's operations more stable.
Bittensor was up this week in part as a recovery from dropping early in the month following an $8 million exploit. The entire network was shut down briefly but the token recovered nonetheless.
Politics plays a role in crypto this week
It's also hard to overlook the political aspect of crypto trading right now. Crypto has been something like a political football with Democrats being relatively hostile to the industry over the past four years and Republicans seeing that as an opportunity to make friends in the crypto industry. Not only has former President Donald Trump come out in favor of crypto, there also are leading members of Congress who are becoming relatively crypto-friendly.
It's never wise to invest based on politics, but the legal standing of some cryptocurrencies will be either more stable or more questionable depending on who is in power. A more friendly political environment could mean more regulatory certainty, whether that comes through the legislature or through regulatory bodies, and current polling is indicating that view is winning voters.
Volatility of smaller tokens
The crypto market overall was up this week, but smaller tokens, like Stacks, Arbitrum, and Bittensor have magnified the moves of bigger tokens in the market. This is common in moves higher and lower, so shouldn't be all that surprising for the week.
This also means that a reversal in crypto values next week could undo the gains made this week.
