Cryptocurrencies pulled back after a big run yesterday and as the Federal Reserve sets to conclude its final meeting of the year, likely with a rate cut of 25 basis points. Bitcoin traded at roughly $104,170, as of 11:53 a.m. ET on Wednesday.
Meanwhile, the price of XRP (XRP 1.88%), the world's third-largest cryptocurrency, traded over 5% lower since late yesterday afternoon. The meme tokens Dogecoin (DOGE 3.82%) and Shiba Inu (SHIB 2.25%) traded 4.3% and 4.6% lower, respectively.
Taking a breather
Cryptocurrencies, and more specifically Bitcoin, have rallied this week after President-elect Donald Trump said he would like to create a strategic Bitcoin reserve like the country's strategic oil reserve. A strategic reserve is the buildup of a specific resource such as a commodity that can be used to affect supply or to draw upon in times of emergency.
It is still unclear how such a reserve would work, but the government currently has about 200,000 bitcoins, worth some $21 billion, that could be the launching point for a strategic reserve.
And MicroStrategy, the data company founded by Michael Saylor and the largest public holder of Bitcoin, has now joined the Nasdaq 100 index. These events pushed the crypto past $107,000 yesterday.
However, traders may have locked in some gains earlier today in anticipation of the Fed concluding its last meeting of the year. Heading into the meeting, nearly all investors expected the Fed to lower interest rates by 25 basis points.
But there is likely more focus on the Fed's messaging, which could turn hawkish considering the labor market is still strong, inflation is still above the Fed's preferred 2% target, and Trump policies like tariffs could stoke inflation. This may put further rate cuts next year at risk, and Bitcoin along with crypto in general have largely moved higher on news of such cuts.
In more token-specific news, Ripple, the company behind XRP, launched its highly anticipated stablecoin RLUSD this week, tracking the U.S. dollar. Earlier this week, Ripple said, "Each RLUSD token is fully backed by U.S. dollar deposits, U.S. government bonds, and cash equivalents -- designed to ensure its stability, reliability, and liquidity."
RLUSD can be used on Ethereum's blockchain or the XRP ledger. Because it will create more traffic on the XRP ledger, investors also purchased XRP tokens earlier this week in anticipation of the stablecoin, according to Fortune. The price of XRP rose yesterday but has struggled today along with the broader sector.
Keeping an eye on the macro forces
Much of what's driving movement in the crypto sector today appears to be related to the macro environment. Many believe Bitcoin is a hedge against inflation. However, the broader sector has largely performed like growth stocks, performing better in risk-on environments and worse in the face of rising interest rates and inflation. That's why the trajectory of interest rates next year will likely impact most cryptocurrencies.
XRP is one of the few tokens I own, and I think it has strong potential due to its fixed supply and efficient network. Its ties to Ripple and RLUSD may also prove bullish.
I currently have no interest in Dogecoin and Shiba Inu because they lack utility and don't yet have any ability to hedge inflation. Most altcoins are extremely volatile, so investors shouldn't invest too heavily in any individual token.
