Why Coinbase and Altcoins Jumped Midday Tuesday

What happened 

Cryptocurrencies have had another volatile day on Tuesday as investors grapple with both bullish and bearish sentiments in the market. Oil is up 3.7% at 1:20 p.m. ET and stock markets are mixed after the Federal Reserve indicated that it will fight inflation over preventing a recession but also isn’t going to raise rates rapidly at this stage. That could be giving markets pause on the recession risk, but pushing cryptocurrencies higher as traders hear that interest rates aren’t about to jump.

Shares of Coinbase Global (COIN -0.41%) went on a wild ride, climbing 6.9% in the first hour of trading only to give all of the day’s gains back by 1 p.m. ET. Shares are currently up 1.1% on the day. Bitcoin Cash (BCH 9.30%) is up 10.2% in the last 24 hours, Eos (EOS -2.21%) is up 4.2% but was up 15% from bottom to top today, and Chiliz (CHZ 15.14%) is up 19.9% today. 

So what 

On the plus side, the Federal Reserve issued guidance that outlined how crypto banks could get access to master accounts with the central bank. The crypto industry largely lives in an unregulated space at the moment and this would pull some companies into the regulatory system. Having master accounts would give crypto banks access to the Federal Reserve’s payment structure and transaction settlement, among other benefits. 

Although these master accounts would be a step in the right direction, they wouldn’t give crypto companies the ability to provide their own FDIC insurance, which would help protect customer funds. But it could be a step in that direction. 

Coinbase is also facing a new class action lawsuit that accuses the company of leaving customers’ accounts vulnerable to theft and unauthorized transfers. It’s not clear where this lawsuit will go, but it’s worth at least having on investors’ radar.

Any regulations will likely be a help to a company like Coinbase, which has faced pressure from both the Securities and Exchange Commission (SEC) and investors for listing tokens that could be considered securities. But the rules are opaque about what’s a security and what’s not and that’s holding Coinbase back from offering more products to customers. 

Now what 

What’s interesting about today’s move is that small altcoins are jumping while big cryptocurrencies haven’t moved much at all. That could be because investors are moving down the risk curve to cryptocurrencies that present a lot of risk and could benefit from lower interest rates, or it could just be a volatile trading day. 

If you’re a long-term investor, this could be an opportunity to take profits on altcoins and move into higher-quality cryptocurrencies. It’s not likely there will be thousands of cryptocurrencies in wide use years from now, so I think moving to quality is a good move in this market. 

I think the regulatory momentum will continue well into next year. The crypto industry is still operating in a gray regulatory area, but with companies like Coinbase working with powerful financial institutions, there will be pressure to make the rules clear. That’s great for everyone in the industry and over time should benefit Coinbase.