Another Rollercoaster Week for Cryptos?

Investors are concerned that President Donald Trump's tariff proposals might jeopardise the crypto sector's expectations for interest rate cuts this year, and a new assessment of inflation rates is expected to test this notion this week.

Cryptos were whipsawed last week after stock market volatility caused by news of Trump's intentions to impose tariffs on the biggest US trade partners, even as the Wall Street benchmark, the S&P 500, stayed around 1% below record-high levels, cryptos were whipsawed.

For cryptos eyeing the next boost from the US central bank, tariffs add another layer of complexity because they are generally believed to cause inflation.

In anticipation of tariff impact data, the central bank is expected to be on an extended pause well into the second half of this year.

The market estimates that the Federal Reserve will keep interest rates unchanged at its March meeting, with two cuts likely by year's end. This probability exceeds 80%.

US jobs data on Friday were mixed, adding weight to the idea that the Fed will remain on hold in March. A 4% unemployment rate sustained a solid labour market, even if job creation slowed more than projected in January.

However, not all investors are as bullish on the prospect of additional Fed easing this year.

Economists at Morgan Stanley reduced their previous projections of two cuts this year to a single June cut, stating in a report that "the path for monetary policy in 2025 remains highly uncertain."

The Morgan Stanley team cited uncertainty over tariffs as a reason for unlikely rate cuts.

Last week, investors had to deal with a changing tariff background as Trump imposed tariffs on Chinese imports, which he then delayed for a month, and duties on Canadian and Mexican goods totalling 10%.

The rate outlook may become clearer during Fed Chair Jerome Powell's testimony before Congress on Tuesday and Wednesday.

In the wake of Monday's original tariff news, the CBOE Volatility Index, or the VIX index, surged to a one-week high of 20.42 before settling down to about 15.

As the US economy is chugging along and jobs data are coming in better than feared, the Fed's pause plan is a reality for the digital assets sector.

Bitcoin ended the week below $100,000 and see-sawed between small gains and big losses, with the OG token last changing hands at a touch over $97,100.

The flows into Bitcoin ETFs remain positive, with the daily net inflows showing $171.19 million on Friday, according to SoSoValue.

However, the positioning data suggests that more positions were closed than opened, indicating a weakening trend or reduced market activity.

According to SoSoValue, the daily total net open interest (Delta) as of Thursday was -$15.61 million.

The trend shows an increase in open contracts for Puts because market makers are selling underlying assets to hedge their positions, and more Bitcoin ETFs are being sold.

Overall, the cryptocurrency market shrunk in market cap last week.

The total market capitalisation of cryptocurrencies is now $3.07 trillion, down 10.44% from the week before. The trading volume of cryptocurrencies on the 24-hour market also dropped 0.68% on Friday.

Another risk to the crypto sector is broader worry on Wall Street, which has been big tech firms' earnings.

Still, earnings for the fourth quarter have increased 12.7% year-over-year, according to more than half of the S&P 500 companies that have already reported, compared to an initial projection of a 9.6% rise in January.

However, the corporate outlook is somewhat subdued, and risk assets are being weighed, with earnings call recordings citing tariffs as the biggest threat to the bottom line.

Other crypto tokens saw significant price drops last week: Ethereum was down 19.8%, Solana fell 14.7%, Cardano ended 24.2% lower, and XRP fell 19.2%, according to data from S&P Global Market Intelligence.

Ether Hurting?

After dominating the blockchain landscape for an entire cycle, Ethereum has now turned into a major anomaly.

Memecoins and other recent debuts have been on the Solana blockchain, and advances in finance are moving towards faster and cheaper networks like XRP and Solana.

Caroline Pham, acting chair of the Commodity Futures Trading Commission (CFTC), gave rise to the idea that utility blockchains are gaining popularity towards the end of the week.

She claimed to convene a digital assets forum with representatives from Ripple, Circle, Coinbase, and others to discuss using stablecoins as trade collateral and the possibility of tokenizing specific transactions.

Ryan Lee, chief analyst at Bitget, highlighted that the "anticipated PECTRA upgrade in 2025, aimed at enhancing scalability and performance, could positively impact Ethereum’s value."

"Demand for ETH is also driven by its utility in decentralized finance (DeFi) and the non-fungible token (NFT) market," he said in a comment to Blockhead. "The potential approval of spot Ethereum ETFs is expected to attract more institutional investment, though the impact may not be as immediate as seen with Bitcoin."

"Additionally, the ETH/BTC ratio is being closely watched, as gains in ETH against BTC could signal a broader altcoin rally, further influencing Ethereum’s price trajectory. Both assets remain subject to broader market trends and macroeconomic factors, which will continue to shape their performance in the near term."

The market's expectation of regulatory clarity and a robust economy has increased cryptocurrency prices since early November.

However, the growth stock market and cryptocurrency markets have been very volatile this week due to a number of issues.

Investors are considering the sustainability of the industry's continued growth and are also closely watching the return on investment (ROI) of big global tech companies.

Investors are taking a "risk-off" stance due to the gloomy outlook for technology stocks.

Elsewhere

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