Week in Review: Cryptocurrencies Surrender Gains as Stocks Surge

Stocks and cryptocurrencies diverged sharply this week, as capital poured out of the digital asset class following a month of gains. Stock markets received a boost from strong corporate earnings, the easing of geopolitical tensions and tamer than expected inflation for the world’s largest economy.

Cryptocurrencies Give Back Gains

The combined value of cryptocurrencies plunged more than $65 billion this week, with the bulk of the decline occurring Friday after Korean prosecutors raided the country’s largest digital currency exchange.

South Korea’s UpBit has been raided by federal authorities over suspicion of fraud, Reuters reported Friday, citing local news sources. The company issued a formal statement on its website informing traders that it is complying with the investigation and that all transactions and withdrawals are operating normally.

UpBit is the world’s fourth largest crypto exchange by volume.

Bitcoin prices plunged to three-week lows after spending most of the week above $9,000. Bitcoin bottomed near $8,500 Friday but later recovered to trade at $8,620.

The vast majority of coins in the top-100 lost double digits on Friday, including Ethereum, Ripple XRP and bitcoin cash. The combined value of all cryptocurrencies reached a low of $379.8 billion Friday before recovering near $392 billion.

Despite recent declines, cryptocurrency prices are still being underpinned by positive fundamental drivers, including greater institutional adoption and key acquisitions of major exchanges. That said, the bulls have certainly lost momentum with the recent UpBit news souring investor sentiment.

Stocks Book Solid Gains

U.S. stocks capped off one of their best weeks since January, with energy shares leading the market higher.

All of Wall Street’s major indexes finished in the black, with the Dow Jones Industrial Average notching its seventh consecutive daily advance Friday. The blue-chip index closed at 24,831.17, its highest since March. For the week, the Dow added 2.4%.

The broader S&P 500 Index gained 2.6% for the week to close at 2,727.72. Meanwhile, the technology-focused Nasdaq Composite Index surged 2.7% over five days to finish at 7,402.88.

Wall Street’s impressive rally was accompanied by a sharp fall in volatility. The CBOE VIX, commonly known as the “fear index,” fell to its lowest level since January.  The index, which trades on a scale of 1-100, closed at 12.65 on Friday.

Geopolitics in Focus

Developments on the geopolitical front were front and center for commodity traders this week after President Trump decided to exit the 2015 Iran nuclear deal. U.S. fallout from the deal means Iran will once again be subject to economic sanctions, which includes limitations on crude exports.

U.S. companies were also hit hard by the resumption of Iranian sanctions, with Boeing and Airbus said to have lost a combined $40 billion in contracts with the Islamic Republic.

However, on the subject of North Korea, investors had much more to be optimistic about after President Trump confirmed that he would meet with Kim Jong-un at a summit in Singapore next month.

The two Korean nations have pledged peace and denuclearization on their peninsula following U.S. and Chinese diplomatic intervention.

The Week Ahead

A stalled cryptocurrency rally will have some speculators concerned about the voracity of the spring recovery. Last week, crypto assets appeared poised to test the $500 billion market cap level. Price action over the last five days showed relative stability with the bulk of the declines concentrated on Friday.

Equities have returned to health following a prolonged period of volatility. However, the real test will come after corporate earnings season as investors contend with rising interest rates. The yield on the benchmark 10-year U.S. Treasury note exceeded 3% this week, signaling renewed concern over the health of the U.S. economy.

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock.

Chief Editor to Hacked.com and Contributor to CCN.com, Sam Bourgi has spent the past nine years focused on economics, markets and cryptocurrencies. His work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Avid crypto watchers and those with a libertarian persuasion can follow him on twitter at @hsbourgi