The cryptocurrency market has experienced a few days of volatility, reacting to all the news of the week while most markets were closed. Tariff negotiations between the US and other countries seem to be at a standstill, with threats of higher tariffs this summer if agreements are not reached.
Cryptocurrency may not be where you expect to see reactions to policy news like this, but this is often where investors first see market volatility. XRP (CRYPTO: XRP) is one of the most volatile coins, with a value decrease of 11.9% from last weekend's high to this morning's low. Ethereum (CRYPTO: ETH) dropped 10.4% during the same period, and Solana (CRYPTO: SOL) decreased by 12.8%. All three tokens have regained some losses in Monday's trading.
Cryptocurrency News Is Positive
Most news related to cryptocurrency continues to be positive. XRP futures began trading on the CME exchange, which could be a precursor to an early exchange-traded fund (ETF) launch.
Ethereum co-founder, Vitalik Buterin, also proposed changes to the blockchain to make running a node easier. Development on Ethereum is slow, but it aims to help scale the blockchain and reduce costs, especially for Layer 2 blockchains.
Solana will also soon have an ETF, but the Securities and Exchange Commission (SEC) has delayed its decision on proposed ETFs based on this token. However, the blockchain received some good news when Chainlink's cross-chain interaction protocol was implemented on the blockchain, the first non-EVM chain to be upgraded.
US Policy News Causes Market Decline
The macro reason for the decline in cryptocurrency value is due to changes in US policy. Over the weekend and early Monday morning, the White House indicated that trade negotiations were not going well and tariffs could increase to levels seen on April 2.
The bond market did not wait to react, pushing the 30-year bond yield up to 4.91%, a significant increase from 4.39% on April 2, when the tariffs were announced.
The 10-year bond yield, which is the benchmark for many corporate bonds, remained unchanged for the day at 4.45%, up from 4% when the tariffs were announced.
The market is monitoring bond yields because if tariffs remain high, it is very likely that the US will enter a recession this year, which could trigger a global downturn. And yields typically decrease during recessions to stimulate consumer demand.
The difference this time is the likelihood that the Federal Reserve will have to raise interest rates to combat inflation, surpassing the demand to boost the economy. And during periods of slow (or negative) growth and high interest rates, investors will flee to safe havens and higher yields, excluding cryptocurrencies.
A Bright Yet Uncertain Future
The tug-of-war between bullish news and bearish economic prospects continues to impact cryptocurrency. And with correlations to growth and technology stocks more than any stable asset, the potential for volatility will continue.
I think the policy environment for cryptocurrency is improving, but it is difficult to see significant economic growth in 2025, given the uncertainty around tariffs and cautious consumers. This may affect valuations, which we are starting to see in waves like this weekend.
