It was another wild ride for cryptocurrencies this week, as evolving regulations and a major cyber security breach dulled investors’ appetite. Although the fundamental picture hasn’t changed very much, bitcoin continues to struggle below $12,000, with altcoins eating away its market share.
Equity markets continued higher this week, as Wall Street soared to new record highs. Meanwhile, the U.S. dollar plunged o its lowest in over three years as NAFTA negotiations teetered on the brink of collapse.
Crypto Market Declines for Second Consecutive Week
The global cryptocurrency market booked its second consecutive weekly decline through Friday, as bitcoin, Ethereum and Ripple struggled to regain momentum. At the time of writing, the total market cap for cryptocurrencies was $545 billion, down from roughly $567 billion a week ago.
Over the past seven days, the market has fluctuated between $489 billion and $638 billion. In terms of individual cryptos, bitcoin is trading in the low $11,000s, Ethereum around $1,070 and Ripple at $1.22.
Earlier this week, South Korea officially banned anonymous cryptocurrency accounts in a move intended to stamp out excess speculation from the market. Although policymakers may implement new controls in the future, the measures adopted so far are well short of doomsday scenarios put forward by mainstream media outlets.
Cryptos were faced with another brisk selloff Friday after Japanese digital currency exchange Coincheck confirmed that 500 million NEM tokens were stolen. The news triggered a large dump of NEM cryptocurrency, with bitcoin, Ripple and others also facing an immediate drop.
Stocks Extend Winning Streak as Earnings Accelerate
Wall Street and European stocks extended their winning streak this week, as upbeat earnings and pro-growth optimism continued to win over risk-seeking investors.
In the U.S., the Dow Jones Industrial Average surged 224 points on Friday to close at 26,616.71. The blue-chip index has now returned more than 7% since the start of the year and is up 36% over the last 12 months.
The large-cap S&P 500 Index rose 1.2% on Friday to finish at 2,872.87. It too has gained more than 7% since the new year. Meanwhile, the technology-heavy Nasdaq Composite Index spiked 1.3% on Friday to 7,606.77. For all of 2018, the Nasdaq has returned 8.7%.
All of Europe’s major averages finished Friday’s session in positive territory, with the Euro Stoxx 50 Pr gaining 0.5% to 3,647.41. The Eurozone benchmark is up more than 4% this month.
On the earnings front, corporate America continues to outpace forecasts in terms of profitability and earnings, with the vast majority of S&P 500 companies posted stronger than expected results. Roughly one-quarter of S&P 500 companies have reported Q4 earnings thus far, and their combined blended earnings growth rate is 12%, according to FactSet.
U.S. Dollar Sinks to Three-Year Low
The U.S. dollar is off to the worst start to a year in decades, with the currency’s major competitors receiving huge boosts on stronger economic growth and expectations for gradual rate hikes domestically. The U.S. dollar index (DXY) fell another 0.4% on Friday to finish at 89.07. Les than a year ago, it was trading above 101.00.
Although President Trump succeeded briefly Friday in talking up the U.S. currency, concerns over the breakdown of NAFTA continued to dampen investor sentiment. Government officials in Canada believe the North American Free Trade Agreement (NAFTA) is on the brink of collapse as the Trump administration has refused to budge on several contentious issues.
Earlier this week, U.S. Treasury Secretary Stephen Mnuchin seemed to advocate for a weaker currency by claiming it would be better for the country’s short-term prospects. However, Mnuchin later clarified that the comments were taken out of context, and that his position on the dollar remains consistent with what he has said all along.
The Week Ahead
Fear and propaganda have pervaded the cryptocurrency market over the past two weeks, triggering heavy volatility as speculators rushed to cash in their profits. Price action in bitcoin and Ethereum seem to suggest that the market has established a base of support, which means the worst of the most recent crash may have passed.
Corporate earnings will continue to influence Wall Street heading into February. President Trump is also scheduled to deliver his first State of the Union address on Jan. 30, where an outline of his infrastructure plan is expected.
Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.
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