Why Dogecoin and Shiba Inu are tumbling today

Cryptocurrencies continue to struggle against the challenging economic backdrop.

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Shiba Inu dog lying on the floor.

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

What happened

Cryptocurrencies continued to struggle today as the market continues to navigate a worrisome macro outlook that is leading to a sell-off of riskier assets.

Over the last 24 hours, the price of the world's largest cryptocurrency, Bitcoin (CRYPTO: BTC), was trading roughly flat at 10:56 a.m. ET today. However, Bitcoin briefly dropped below $30,000 today for the second time this week and is down more than 12% over the last five days.

The price of Dogecoin (CRYPTO: DOGE) had fallen roughly 16% over the last day at the same time, and the price of Shiba Inu (CRYPTO: SHIB) had fallen roughly 17.5%.

So what

Cryptocurrencies haven't fared much better than tech stocks in recent months, as the Federal Reserve first tightened and then raised its benchmark overnight lending rate, the federal funds rate. It has raised that rate roughly 0.75% over its last two meetings, including with a half-point hike at its meeting earlier this month. When the Fed hikes rates, it makes safer assets like U.S. Treasury bills, which are guaranteed by the U.S. government, yield more. That makes investors demand higher returns from other riskier assets, which can put pressure on them.

"This further supports the case that bitcoin investors were seeking to de-risk, sell or add collateral to margin in response to market volatility," analysts from the blockchain company Glassnode wrote in a report earlier this week.

Additionally, inflation has remained high. New data from the Bureau of Labor Statistics showed that the Consumer Price Index, which tracks the prices of common everyday goods and services, was up 8.3% year over year in April. That's down slightly from the increase in the CPI in March but more than the 8.1% increase that experts and analysts had been predicting. 

"We're starting to see energy [costs] pull back a little bit, but it's not enough," said Kathy Jones, the chief fixed-income strategist at Charles Schwab, according to CNBC. "The markets were hoping for a better number and it's not good enough to rule out more Fed tightening."

Many have long seen Bitcoin as a good hedge against inflation due to its finite supply of 21 million tokens. But so far there's been no real proof of that, as the price of Bitcoin is now down more than 50% over the last six months.

Now what

I don't see much news on the meme tokens Dogecoin and Shiba Inu, but I think they are struggling along with the broader altcoin market.

While they definitely trade with some correlation to Bitcoin, altcoins like this are arguably even riskier because they are not being driven by any kind of fundamentals in the first place, but really by their ability to build a community and investor excitement around themselves.

Additionally, there is likely no chance that either Dogecoin or Shiba Inu could ever hedge inflation due to their huge supplies. Dogecoin has no supply limit, while Shiba Inu's is 1 quadrillion tokens, although there are currently 549 trillion tokens still in circulation.

Ultimately, I am pretty bearish on Dogecoin and Shiba Inu but still believe in Bitcoin as a long-term buy and hold. Every day, more of the traditional financial system seems to adopt Bitcoin and use blockchain technology.

I also believe there is the potential for cryptocurrencies to gain more adoption among consumers for daily transactions and payment purposes, which would also likely be good for crypto prices. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Charles Schwab is an advertising partner of The Ascent, a Motley Fool company. Bram Berkowitz has positions in Bitcoin. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Bitcoin. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has recommended Charles Schwab. The Motley Fool Australia owns and has recommended Bitcoin. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips. 

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