A Friday sell-off capped a gloomy week, with many worried about the state of the macroeconomy.

Sooner or later, even the most beloved financial assets obey gravity no matter how high they’ve soared. This week we saw a decline in a clutch of very recently soaring altcoins, as a higher-than-expected inflation readout and profit-taking hit the cryptocurrency market.

Over the course of the five trading weekdays, according to data compiled by S&P Global Market Intelligence, as of late Friday afternoon both Fantom (FTM -25.67%) and Theta Network (THETA -21.04%) were trading down by nearly 6% week to date. Bittensor (CRYPTO:TAO) was faring worse, with a more than 8% slide over the period.

Untamed inflation

One big monster in the room over the past few days was inflation, which came in higher than many had anticipated — this beast might take a while to tame, after all. On Wednesday, the government’s Bureau of Labor Statistics reported that inflation in March had risen by 3.5% year over year, which was 0.3 percentage points higher than the February figure and notably above the estimates of many economists.

Suddenly, there’s much less talk of the interest rate cuts Federal Reserve (Fed) officials were hoping to start enacting this year.

The prospect of our current, relatively high rates dragging on for longer than expected is sobering to crypto investors. Lower rates make boring-but-safe investments more attractive, as instruments like bonds pay higher interest and become more competitive with the risky stuff. Despite their rising popularity and the belief some hold that they’re ideal stores of value, ultimately cryptocurrencies have to be considered high on the risk scale.

At times, it can take a trading day or two for discouraging news to impact the market. The following Friday saw a wide sell-off of many crypto assets. This includes the Pied Piper behind which every altcoin hops, Bitcoin. That day alone, Bitcoin’s price was headed south as of very late afternoon trading at a near 5% clip. And when Bitcoin’s having a downer, your favorite altcoin is probably headed south, too.

Bargains coming?

Some economists are speculating darkly that we’re in for more inflation “surprises.” What isn’t helping at the moment is the apparently insatiable demand for housing; the prices in this category rose notably in March.

Where does this leave cryptocurrency? Coins and tokens might be in for a reckoning, and we shouldn’t be surprised to see a period of correction as investors get used to the current situation. That might, however, provide a nice entry point for crypto bulls — if so, we should keep an eye on altcoins, as the more volatile ones could see outsized price gains on a rally.

Eric Volkman has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool recommends Theta Token. The Motley Fool has a disclosure policy.

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