Cryptocurrencies have had an incredible run since the U.S. election in November, but that's come crashing to a halt in just the last few weeks. Economic uncertainty and a disappointing crypto strategic reserve announcement has led investors to "sell the news" in crypto, and that sell-off continued this week.
According to data provided by S&P Global Market Intelligence, Polkadot (DOT +3.15%) fell as much as 14.5% this week, Cardano (ADA +2.58%) was down 18.6%, and Chainlink (LINK +5.30%) was off 22.9%. The tokens are currently down 7.7%, 13.5%, and 12.4%, respectively, over the past week after a rally late in the week.
Tariffs hit crypto?
The biggest news in crypto wasn't really about cryptocurrencies at all. The tariff saga happening between the U.S. and Canada has given the market uncertainty about the future of the economy and tariffs overall. It was thought early in the Trump administration that tariffs would be a bargaining chip, but it now looks like they're a strategy that will put economic pressure on the U.S. as early as this quarter.
A down economy isn't good for crypto because it pulls assets from risky assets like cryptocurrencies into less risky assets or into savings as people have less money to speculate with. So, cryptocurrencies aren't technically impacted by tariffs, but the collateral damage is going to hit the industry.
Cryptocurrencies are also highly correlated with growth stocks, and as growth stocks drop, it's no surprise the crypto industry is falling as well.
The crypto reserve falls flat
For tokens like Cardano, there was hope a cryptocurrency strategic reserve would cause buying pressure for the token and help the industry's adoption in the U.S. and around the world. But when details were announced, the U.S. said it wasn't buying more cryptocurrencies but rather keeping seized tokens it already holds.
That news has been part of the unwind of cryptocurrency values over the last few weeks. Speculation of a crypto reserve pushed tokens higher, and details of the program deflated the speculation.
Crypto may have a brighter future
Polkadot, Cardano, and Chainlink are ultimately tokens on blockchains that are intended to be used for real utility, not just speculation. So, the trend of clearer regulation and President Trump reportedly ending "Operation Chokepoint 2.0," and a stablecoin bill moving through Congress should be seen as good things. But that's not what we see today.
Instead of trading based on their fundamental use cases, cryptocurrencies move more with speculation, and the speculation today is that the economy is getting weaker and investors won't have as much to invest in high-risk assets like cryptocurrencies. And so goes the volatility of the crypto market.
What's most important to remember now is where there's long-term value on the blockchain. We are seeing more financial transactions and the securitization of more assets, but that doesn't mean there's value being accrued to crypto tokens. In fact, I think clearer regulation will unleash innovation, but that will show that cryptocurrencies like these aren't where the value is in crypto, and that's why I'm not buying the dip this week.
