The Federal Reserve will announce its latest move on interest rates Wednesday afternoon, and the market is on edge as it awaits the news. That tension has put downward pressure on crypto prices for the time being, but the bigger news for token holders might be the layoffs taking place in the industry this week, which show just how weak the fundamentals are for some crypto companies.
Some of the biggest decliners on Wednesday were meme coins that had previously been having a great week. In the 24-hour period that ended at 10:20 a.m. ET, Dogecoin (DOGE -4.81%) fell 5.1% Shiba Inu (SHIB -1.86%) lost 6.3%, and Aptos (APT -4.45%) plunged by 7.9%.
The drop in crypto prices came quickly, beginning at about 4:30 a.m. ET, and was widespread across the asset class. One thing that may have prompted some selling is the Federal Open Market Committee (FOMC) meeting, which ends Wednesday. Investors are expecting the committee to announce another 75-basis-point increase to the benchmark federal funds rate.
Rising interest rates have caused investors to shift away from riskier assets in favor of safer ones like bonds, which generate more steady returns. The substantial rise in the federal funds rate in 2022 from the near-zero level it had been held at since the pandemic began has been a big reason that crypto prices have gone into a bear market, and that pattern looks like it will continue Wednesday. What we don’t know is what Fed Chair Jerome Powell will say about the FOMC’s outlook for future rate increases, which could continue until inflation is brought back under control.
The other negative rippling across the crypto industry is that three major companies are cutting staff. Galaxy Digital said it will cut as much as 20% of its workforce, BitMEX will lay off 30% of its staff, and Digital Currency Group (DCG) is cutting 13% of its staff. DCG is the parent company of CoinDesk, a well-known news site that covers the cryptocurrency space.
These aren’t the first layoffs for crypto companies, but they are another sign that the crypto winter is taking its toll on business operations.
There’s a lot of uncertainty in the crypto market right now, and that’s causing oscillations in the prices of many cryptocurrencies. Layoffs at crypto-related venture capital and media companies, as well as those in other parts of the industry, don’t bode well for future value creation. That’s understandably a big concern for investors.
We may also be seeing some over-hyped cryptocurrencies unwind their recent gains. The prices of Dogecoin and Shiba Inu rose based in part on speculation that Elon Musk will somehow use the tokens on Twitter, but that remains to be seen. Aptos was the hottest blockchain launch of the year, but the cryptocurrency is still very immature, and will take years to catch up to cryptocurrencies with more established use cases and similar valuations — if it does at all.
Volatility is common in crypto, and Wednesday brought more of the same. Investors considering purchasing tokens should look for those with growing adoption among developers and users. Not all tokens will survive this crypto winter, so sticking with the strongest would be a better investment move.
Travis Hoium has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.