Could stronger government regulation be good news for cryptocurrencies?
Cryptocurrencies started the week on a good note with values jumping across the board in Monday's trading. That upward trend started late on Sunday, but it has persisted and gained steam.
As of 2 p.m. ET, Bitcoin ( BTC 1.15% ) was trading 6.1% higher over the prior 24 hours, Ethereum ( ETH 2.88% )was up 6.5%, and Solana ( SOL 5.33% ) was up 9.5%. This continues a great week for cryptocurrencies broadly.
The biggest news came Sunday from the United Kingdom, where the government said it expects to announce its plans for regulating crypto in the near future. CNBC reported that those regulations will center around stable coins and digital assets, but they're expected to be relatively friendly to the industry. Western nations have been taking an increasingly favorable approach to cryptocurrencies, and this appears to be another step in that direction. That differs from the approach taken by countries such as China, which has moved to ban cryptocurrencies.
Investors may also be buying Ethereum ahead of "the merge" -- the blockchain's transition from its current proof-of-work validation mode to a proof-of-stake protocol. This is seen as a very bullish change for projects that are building utility into the blockchain because Ethereum is the most valuable cryptocurrency for smart contracts.
Being pulled upward by the momentum of its larger rivals is Solana, which has some of the same utility ability as Ethereum, but with lower costs. If digital assets broadly are adopted by people around the world, that would be a very bullish trend for Solana.
Volatility is standard in the cryptocurrency market, and Monday's moves reflect that. What I think we're seeing is that investors are becoming more comfortable with where interest rates are headed, and gaining a clearer understanding of the risks created by Russia's invasion of Ukraine. This, in turn, has led to some "risk on" buying of cryptocurrencies.
The reports about the U.K.'s regulatory plans are also generally bullish for cryptocurrencies, but it's hard to predict exactly where the rule-making processes will go from here. The U.S. and Europe seem to be taking a generally favorable view of digital assets, but it's not clear where regulations will land or when they will begin to be enforced.
I still think the best way to invest in the crypto market is in projects where developers can build new and innovative utilities. That's what Ethereum and Solana bring to market, and it's why they've been as successful as they are.
The crypto sector is still young, and volatility in prices should be expected. But it seems like the sell-off that hit tokens in late 2021 and early 2022 has slowed, and that's helping valuations. If that leads to more utility for cryptocurrencies, then it'll be bullish for valuations over the long term.