What happened
The crypto market was up sharply on Monday morning as investors turned bullish once again on riskier assets. The S&P 500 is up about 0.9% and the Nasdaq Composite is up 1% as of this writing, which often correlates with rising crypto prices.
At 11:30 a.m. ET, Bitcoin (CRYPTO: BTC) was up 3.4% in the last 24 hours, Solana (CRYPTO: SOL) was up 7.9%, and Near Protocol (CRYPTO: NEAR) jumped 6.3% today. On the flip side, TerraClassicUSD (CRYPTO: USTC) is down 13.8% following a big jump last week.
So what
A rising stock market certainly helps cryptocurrency values. Investors are currently bidding up stocks on speculation that August inflation data won't be as bad as feared. Inflation and high energy prices have both hurt the economy and caused the Federal Reserve to increase interest rates over the past year. If that trend reverses, it could be bullish for stocks and cryptocurrencies.
Founder Michael Saylor's MicroStrategy said today it would sell as much as $500 million in stock to buy more Bitcoin. Saylor continues to be the most consistent Bitcoin bull in the market and seems to be willing to risk the company's future on the cryptocurrency. But for Bitcoin itself, the buying would be incrementally positive for the market.
TerraClassicUSD is the other big mover, but it's moving lower. The legacy "stablecoin" from the Terra ecosystem saw speculative buying last week, but that rally is fading. With very little fundamental reason to keep the cryptocurrency moving higher, this isn't one I would be taking any position in because it's just a trading mechanism at this point.
Now what
If inflation is indeed coming under control that would be a good thing for all riskier assets, whether you're looking at growth stocks or crypto. The risk was that high inflation would force the Federal Reserve to raise interest rates dramatically, which could hurt cryptocurrencies because they would be competing against higher yields for low-risk bonds from the U.S. government. And higher interest rates would likely hurt economic growth and investment in start-ups, which is why crypto investors aren't fond of higher rates.
As much as macro factors are playing into the crypto market right now, what I think investors need to keep in mind is the innovation happening right now. A blockchain like Solana is seeing rapid innovation in everything from decentralized finance to non-fungible tokens and software-as-a-service business models. As these products become more usable, they're gaining adoption across the business world.
I'm still bullish on crypto long-term, but think investors should focus on cryptocurrencies like Solana and Near Protocol that have a path toward innovative utility in the digital world. They're likely to be the places where developers create the next phase of disruptive technology and that's why I'm excited about the industry.
