At this point, it feels like we might be in for a long and sustained rally in cryptocurrencies. In yet another day when investors couldn’t get enough of digital coins and tokens, many altcoins booked solid gains in Thursday’s trading.
Among this long list of winners were the already-popular Solana (SOL 2.41%) and utility coin Filecoin (FIL 5.07%), both of which motored ahead by over 12%. Meme coin Shiba Inu (SHIB 6.65%) has attracted its fair share of criticism, but it was barking happily with a similar gain. Another well-known altcoin, Cardano (ADA 3.80%) didn’t quite reach those heights, but still increased by a very healthy 7%.
Follow the leader!
At their core, all cryptocurrencies function similarly — they are distributed among scores of “nodes” that track their creation and distribution. That’s why, when trading, all tend to follow the trajectory of the original and still most significant crypto, Bitcoin (BTC -2.15%). It’s a truism that when Bitcoin has a good day, for the most part altcoins tend to do well too.
Lo and behold, Bitcoin had yet another lucrative trading day on Thursday. Following its leap over the $60,000 barrier on Wednesday, it generally maintained or added to those gains; as of early evening, it was changing hands at over $61,400 apiece.
The continuing strong inflows into the new-ish spot Bitcoin exchange-traded funds (ETFs) remain a big factor in their foundational coin’s rise. There is another factor, however, that should come more into play across the coming days and weeks — halving.
This, in Bitcoin-speak, means the reward for “mining” (essentially creating) the coin will be halved at a certain point. This is part of Bitcoin’s trajectory, and it happens when the supply of the cryptocurrency reaches a particular level. In the case of the soon-to-be-enacted halving, the level will be pulled when the total number of the coin’s blocks reaches 210,000. Many Bitcoin-watchers expect this to occur next month.
The idea behind halving is to slow the supply of Bitcoin as it pushes toward its maximum number, which has been set at 21 million coins. And a basic principle of economics is that the more constrained the supply of a good or service, the more valuable it becomes in the minds of many investors, and the more they’re willing to pay for it.
Nothing lasts forever
This has a cascading effect on altcoins; since Bitcoin is becoming more valued by the public, other coins and tokens must also be more worthwhile.
So it’s no wonder that this rally is so broad, encompassing practical cryptos and meme coins alike. Whether it’s going to last is quite another issue — what goes up must inevitably drop. Cryptos are blazing hot in popularity with investors lately, but let’s remember the times sudden cooldowns occurred.
Eric Volkman has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin, Cardano, and Solana. The Motley Fool has a disclosure policy.
