Cryptocurrency values came roaring back late on Thursday and into Friday after an absolutely brutal week. The jump in valuations was widespread across the industry and utility cryptocurrencies seemed to be bouncing back better than others.
As of 3 p.m. ET on Friday, Solana (SOL -2.34%) had jumped as much as 24.7%, Cardano (ADA -2.47%) was up 22.2%, and Avalanche (AVAX 0.01%) was up 24%. Keep in mind that for the week, valuations were down 37.2%, 29.8%, and 41.3% respectively.
There were two main factors driving cryptocurrency values lower this week. One was a general downturn in the market that's been driven by some weak earnings or guidance, economic uncertainty, and rising interest rates. The other catalyst was the collapse of Terra Luna and TerraUSD this week. TerraUSD was supposed to be a stablecoin with a peg at $1, but it lost its peg and confidence in the entire crypto ecosystem crashed as a result.
It's not entirely clear what led to the increase in valuations, but there was generally a "risk-on" trade taking place with growth stocks, tech stocks, and crypto all jumping on Friday.
One thing that's notable about the collapse of Terra Luna is that it hasn't caused a cascade of other cryptocurrencies to fall. That's a sign that the industry is more stable than it was just a few years ago.
The crypto industry has always been volatile, but right now euphoria is leaving the market broadly. Money that poured in during the pandemic is flooding out and that's causing risky assets to drop. Cryptocurrency is one of the riskiest asset classes today, so it's not surprising to see values drop sharply.
What's different today about cryptocurrency is the development and utility that's being built on their blockchains. Solana, Cardano, and Avalanche are three of the leaders in non-fungible tokens (NFTs) and decentralized finance and that's where their future value will come from. Users will want to use these products and developers will want to build on their blockchains, which is great for long-term value.
While the long-term picture looks promising for utility blockchains, it's not clear when a recovery will come in earnest or where the bottom is. There are still reasons to be concerned about the market dropping further, from the likelihood of a recession this year to the Federal Reserve pulling money from the market.
Since it's impossible to predict the short-term trends, I think investors need to focus on the long term and what's being built. Solana continues to attract developers rapidly and Cardano and Avalanche are building out their infrastructure. If they keep building utility out they could be long-term winners, which is why I'll hold onto my utility cryptocurrencies today.