Why Cryptos Whipsawed On Wednesday?

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Top cryptocurrencies Bitcoin and Ethereum scaled fresh peaks on Wednesday, soon after the release of inflation readings from the U.S. The annual inflation rate of 6.2 percent for the month of October was the highest since November 1990. Markets were expecting a reading of 5.80 percent. The monthly inflation rate also jumped to 0.9 percent, from 0.4 percent a month before and against forecasts of 0.6 percent.

In the backdrop of surging inflation and the rising appeal as an effective inflation hedge, Bitcoin touched a fresh high of $68,789.63, surpassing the previous high of $68,530.34 seen on November 8. Ethereum also followed suit and touched a fresh high of $4,859.50, exceeding the previous high of $4,837.59 touched on November 9.

Though concerns about runaway inflation and loss of purchasing power pushed cryptocurrency prices northward, the rally was short lived since holders soon started to cash in on the record prices.

Bitcoin is currently trading at $64,847.81, down 6 percent from the peak, while Ethereum is at $4,706.52, down 3 percent from the peak.

The surge in inflation and the expectations of higher interest rates to combat it pushed the Dollar Index to multi-month highs, depressing the dollar denominated prices of cryptocurrencies.

Cryptos are also reportedly hurt by fear of stock market meltdown and the haunting contagion from other asset classes, especially the property debt woes. Fresh concerns about the adequacy of reserves held by stablecoin players also seemingly played spoilsport to crush the party at the peak.

In the past week, that witnessed whipsawing crypto prices, 10 of the top-15 cryptocurrencies by market capitalization, have recorded weekly gains. 14th ranked Litecoin (LTC) is the best performer with a rally of more than 30 percent. Polkadot (DOT) has shed 10 percent, while Solana (SOL) has dropped 1.1 percent. Solana returned to the 5th rank in market capitalization despite the dip in prices. Meme-token SHIBA INU (SHIB) recouped losses and entered the positive zone with a weekly uptick of 0.85 percent.

Down the hierarchy, 46th ranked Kadena (KDA) is the best cryptocurrency among the top-100 cryptocurrencies ranked according to market capitalization with a weekly gain of close to 200 percent. The Proof-of-work protocol coin has rallied in the backdrop of the recent launch of a wrapped version of its token called wKDA. wKDA operates on the Ethereum network allowing interaction with all Ethereum Virtual Machine-compatible decentralized finance (DeFi) protocols. The recent momentum is also attributed to the addition of NFT capabilities to the network, new exchange listings and new staking opportunities.

In the wider space (top-100), 47th ranked Loopring (LRC) is the best performing crypto token. The Ethereum-based DeX token which aims to combine centralized order matching with decentralized on-blockchain order settlement has gained close to 155 percent in the past week.

74th ranked metaverse token The Sandbox (SAND) declined 22 percent in the past week and topped losers' charts.

Meanwhile, top cryptocurrency exchange Coinbase Global reported quarterly results on Tuesday that showed a sequential drop in trading volumes, revenues and net income.
In a major relief to cryptocurrency industry, The Basel Committee on Banking Supervision, recently announced that it would be issuing a fresh consultative document, in view of the comments received on its earlier document on Prudential Treatment of Cryptoasset Exposures. Various stakeholders including American Bankers Association, Canadian Bankers Association, CME group, European Banking Federation, Federation of Latin American Banks, Coinbase, The Global Digital Asset and Cryptocurrency Association etc had written to BCBS in the light of the guidelines issued in June 2021 on the treatment of bank's exposures to crypto assets.

The global crypto market capitalization is currently at $2.84 trillion, recording a decrease of 2.42 percent from yesterday. Among sub-categories, metaverse market capitalization recorded the maximum dip with a 26 percent overnight reduction in market capitalization to $28.72 billion.

Market capitalization of the Smart Contracts category declined by 2 percent to $854.3 billion. The DeFi category market capitalization also dropped 3.6 percent to $188.8 billion. Stablecoins have edged up by 0.58 percent in market capitalization to $139.2 billion.

Market capitalization of meme coins and tokens dropped by 0.25 percent to $66.5 billion. Market cap of crypto assets used for NFTs has also dipped by more than 3 percent to $58.9 billion. Market capitalization of Play to Earn crypto assets has however increased by 0.08 percent in a day to $24.6 billion.

The overheating of the economy as is evident from the sharp increase in inflation has also heated up the debate on the effectiveness of cryptos as a hedge against hyperinflation. Notwithstanding the sharp fall in prices post the peak, Bitcoin and the top cryptocurrencies are being increasingly positioned as a reliable store-of-value and an effective offset for the not-so-transitory inflationary pains.

If the surge in Bitcoin's market capitalization to $1.2 trillion from $291 billion last year is any indication, the purchasing power protection afforded by top-ranked cryptocurrencies is a definite challenge, not just to fiat currencies, but to conventional inflation hedges like Gold as well.

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