The crypto market has been through a volatile few days, reacting to all of the weekend's news while most markets were closed. Tariff negotiations between the U.S. and other countries seem to be at a standstill, and there are threats of higher tariffs this summer if deals aren't reached.
Cryptocurrencies may not be where you expect to see a reaction to policy news like this, but it's often the first place investors see the market move. XRP (XRP -0.05%) has been one of the biggest movers with its value falling 11.9% from a high late last week to a low in trading early this morning. Ethereum (ETH 3.69%) fell 10.4% over the same time, and Solana (SOL -0.01%) dropped 12.8%. All three tokens have gained back some of their losses in trading during the day on Monday.
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Crypto news is positive
Most of the crypto-specific news continues to be positive. XRP futures began trading on the CME exchange, which could be a precursor to an exchange-traded fund (ETF) launch soon.
Ethereum's co-founder, Vitalik Buterin, also proposed changes to the blockchain that would make running a node easier. Developments on Ethereum are slow, but they're aimed at helping scale the blockchain and lower costs, particularly for Layer-2 blockchains.
Solana should also be getting an ETF soon, but the Securities and Exchange Commission (SEC) has delayed a ruling on proposed ETFs based on the token. But the blockchain did get some good news when Chainlink's cross-chain interoperability protocol went live on the blockchain, the first non-EVM chain to get the upgrade.
U.S. policy news drives markets lower
The macro reason crypto values are down is the changing winds of U.S. policy. Over the weekend and early on Monday, the White House indicated that trade negotiations aren't going well and tariff rates could go up to April 2 levels.
The bond market hasn't waited to react, pushing the 30-year yield to 4.91%, a big jump from 4.39% on April 2, when tariffs were announced.
The 10-year yield, which is a benchmark for many corporate bonds, is flat for the day at 4.45%, up from 4% when tariffs were announced.
Markets are watching bond yields because if tariffs remain high, it's likely the U.S. will enter a recession this year, and that could cause a global slowdown. And yields usually fall during a recession in order to boost consumer demand.
What's different this time is the potential that the Federal Reserve will have to raise rates to combat inflation, overtaking the need to boost the economy. And in a time of slow (or negative) growth and high interest rates, investors will flee to safety and higher yields, which won't include crypto.
A bright and uncertain future
The back-and-forth pull between the bullish news and bearish outlook for the economy continues to hit crypto. And with values correlated more with growth and tech stocks than any stable asset class it's likely this volatility continues.
I think the policy environment for crypto is improving, but it's hard to see how the economy grows significantly in 2025, given the tariff uncertainty and cautious consumers. That will likely weigh on valuations, which we're starting to see in fits and starts like this weekend.
