Is the Great Crypto Rally of 2023 to 2024 over? It was certainly reasonable to think so this week, as both leading coins and altcoins alike shot downward in price.
Some of the more popular and once-upwardly mobile altcoins weren’t spared in the dive. Cardano (CRYPTO: ADA) declined at a 9% clip, according to figures from crypto-exchange operator Coinbase. S&P Global Market Intelligence data showed that peers Arbitrum (CRYPTO: ARB) and Ethereum Classic (CRYPTO: ETC) took even heavier blows, declining by a respective 18% and 15%.
Spot crypto ETF hype subsides
While the old saw “buy the rumor, sell the news” doesn’t always apply to investments, it was undoubtedly a dynamic behind the drops of Cardano and its ilk this week. Late last year the excitement over spot cryptocurrency exchange-traded funds (ETFs) began to build, reaching a crescendo when a pack of them — 13, to be exact — were approved for trading by the Securities and Exchange Commission (SEC) last week.
Why was the market in such a froth over these fairly wonky assets? Because, despite their fairly boring name, they represent a major development in crypto investing. Prior to their introduction, the only really effective way to hold digital coins and tokens was directly.
Stocks and more traditional investments were far easier to buy, sell, and hold. All an investor needs is a brokerage account. With this, they can transact almost instantly whenever they want, while the broker acts as a custodian for their assets.
This hasn’t been the case for cryptocurrencies, however. Direct ownership involves setting up one or more digital wallets, which require a fair amount of care and maintenance. There have been numerous instances of investors with large holdings forgetting their wallet passwords and not being able to recover them. That’s the stuff of any investor nightmare — being frozen out of assets worth thousands, or even millions or billions.
Spot crypto ETFs (which, so far, only hold Bitcoin) are neat instruments in which the ETF manager is the one who directly owns the coins or tokens. That company is the entity that needs to worry about juggling digital wallets, not the investor. The latter simply buys the ETF as a security traded on an exchange, much like an index fund or stock.
A market pause
We’ve seen this pattern before; excitement builds for a new product or service on the investing scene, and once it arrives, the market moves on. The mounting excitement over spot crypto ETFs wasn’t the only factor behind the rise of Bitcoin and altcoins; an improving economic climate and the promise of Federal Reserve key interest-rate cuts also played a major part.
But spot crypto ETFs are now a reality, and there hasn’t been any major (and sharply favorable) fresh economic news, so it seems investors are taking profits with some coin and token holdings. The market needs a break, and for many of its players, this is a fine time to take one.
Should you invest $1,000 in Cardano right now?
Before you buy stock in Cardano, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Cardano wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than tripled the return of S&P 500 since 2002*.
*Stock Advisor returns as of January 16, 2024
Eric Volkman has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin, Cardano, and Coinbase Global. The Motley Fool has a disclosure policy.
Why Altcoins Like Cardano and Arbitrum Flopped This Week was originally published by The Motley Fool