Thursday, 3 October 2024
by BD Banks
Cryptocurrencies plunged today as tensions ratcheted up in the Middle East. Investors and experts have also been questioning the path of interest rates and whether the Federal Reserve will cut as much as the market thinks.
The price of Shiba Inu (CRYPTO: SHIB) fell roughly 6.5% this morning, while the price of XRP (CRYPTO: XRP) and Bitcoin Cash (CRYPTO: BCH) fell 5.7% and 5%, respectively.
The escalating conflict in the Middle East is the big news shaking up the crypto market. Iran launched 200 ballistic missiles into Israel yesterday. Israel also said it plans to deploy more troops into Lebanon in a “limited, localized” ground invasion against the Iran-backed militant organization Hezbollah.
“Surging unrest across the Middle East has propelled oil prices upward and reinforced the dollar’s strength, casting a shadow over Bitcoin and other speculative investments,” said Chris Kline, chief operating officer and co-founder of Bitcoin IRA, according to CNBC.
The price of WTI Crude Oil jumped nearly 2.9% by late morning, while the U.S. Dollar Index was also trading higher. That’s bad news for cryptocurrencies, which are viewed as an alternative to mainstream currencies like the dollar. Cryptocurrencies have historically fared better with a weak dollar and worse under a strengthening dollar.
In another cause for concern, BlackRock‘s CEO, Larry Fink, recently said publicly that he thinks the market is pricing in too many interest rate cuts. According to CME Group‘s FedWatch tool, traders are betting that the Fed will cut its benchmark federal funds rate by another 75 basis points this year and potentially lower it to 3% or below by the end of 2025.
“The amount of easing that’s in the forward curve is crazy,” Fink told Bloomberg at a conference in Berlin. “I do believe there’s room for easing more, but not as much as the forward curve would indicate.”
Lower interest rates tend to lead to a weaker dollar, so if there are fewer cuts than the market is currently pricing in, that could spell trouble for crypto’s near-term outlook.
I didn’t see too much token-specific news this morning, but the crypto asset management firm Bitwise filed some initial documents indicating that it would like to set up an exchange-traded fund that tracks XRP, which was created by the company Ripple. According to CoinDesk, Bitwise took the first step in the ETF process by filing a trust entity in Delaware. This would be a positive catalyst for XRP. Spot Bitcoin and Ethereum ETFs have already increased liquidity and exposure to their respective tokens.
I think it’s clear that the conflict in the Middle East has taken over this morning. I think XRP would normally be up on the news of a potential ETF, but the sector can move together, and the trajectory of interest rates and the dollar is overshadowing everything else.
I am not a huge fan of altcoins due to their inability to stand out from one another and would prefer to buy the dip on Bitcoin and Ether. However, I do see some potential in XRP. XRP’s potential use case of improving cross-border payments is compelling and the token also has a limited supply like Bitcoin, albeit a much higher amount. The potential of an XRP ETF is also very intriguing. Spot ETFs previously led to big surges in the prices of Bitcoin and Ether.
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Bram Berkowitz has positions in Bitcoin and Ethereum. The Motley Fool has positions in and recommends Bitcoin, Ethereum, and XRP. The Motley Fool has a disclosure policy.