Last Sunday night, cryptocurrencies crashed in a precursor to what would happen on Wall Street Monday. Tokens like Bitcoin (CRYPTO: BTC) have recovered most of their losses, but not every cryptocurrency has.
According to data provided by S&P Global Market Intelligence, Ethereum (CRYPTO: ETH) has fallen 16.9% in the past week as of 11:00 a.m. ET on Friday, and that’s dragged down iShares Ethereum Trust ETF (NASDAQ: ETHA) by 14.3% and Lido Staked Ether (CRYPTO: STETH) by 12.6%. Outside the Ethereum family, Polygon (CRYPTO: MATIC) has fallen 9.1% and NEAR Protocol (CRYPTO: NEAR) is down 13.8%.
The panic that started it all
On Sunday night, the 24/7 trading of crypto was the first area to show distress in what’s known as the yen carry trade, which involves borrowing yen at low interest rates and converting it to another currency with higher rates.
A rapid increase in the value of the yen made this trade suddenly extremely unprofitable, and investors had to rapidly sell positions in everything from bonds to stocks to crypto in order to get out. A downward spiral began in the crypto market.
But the unwinding ended relatively quickly as investors bought back into a lot of stocks as the week wore on. Bitcoin even recovered, but smaller cryptocurrencies, including Ethereum, didn’t.
Ethereum’s ETF problem
Part of the pressure on Ethereum is related to outflows from Ethereum ETFs, which have had net outflows since July 24, 2024, totaling $24 million.
One of the hopes with crypto in 2024 is that a proliferation of ETFs would bring more money into the industry, and it did for Bitcoin. But that doesn’t appear to be the case with less popular tokens.
There’s no doubt that tokens like Polygon and NEAR Protocol have also been hurt by the disappointing performance of Ethereum ETFs, which were supposed to lead to more altcoin ETFs in time.
A new gambling token takes attention
Altcoins like Polygon and NEAR Protocol have also been hurt by the sale of over $2 million in Rollblock, a new blockchain gambling token. The sale of a hot new cryptocurrency likely pulled some liquidity from other alternative tokens.
When a utility moves to new tokens, it could reduce demand and value for native tokens. In time, native tokens may not hold much value at all.
Small steps forward
But there have been some positive developments in crypto. NEAR Protocol announced new cross-chain signatures, which will allow NEAR users to own other tokens without moving cross-chain, spending funds on gas, and using multiple wallets. This could increase the utility and viability of the blockchain as a place to innovate.
At the same time, it looks like the policy environment in Washington is becoming more crypto friendly. The White House engaged with crypto leaders this week, ETFs have been approved this year, and crypto appears to be winning in court. Add it up, and the future looks brighter for crypto, even if values are down this week.