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What happened

Coming off a gloomy streak for cryptocurrencies, many coins, tokens, and crypto stocks were bouncing higher on Wednesday. Many investors clearly felt the sell-off in recent days was overblown and were piling in to buy on price weakness.

The No. 2 cryptocurrency by market cap, Ethereum (CRYPTO: ETH), was up by nearly 3% across the preceding 24 hours as of mid-afternoon Wednesday. Ethereum-staking company and crypto miner Bit Digital (NASDAQ: BTBT) saw its stock close nearly 9% higher on the day, as fellow miner TeraWulf (NASDAQ: WULF) rose at an almost 11% clip.

So what

Much of this had to do with the improving sentiment supporting crypto No. 1 and the asset miners love the most — Bitcoin (CRYPTO: BTC). The coin was up by 2% over the past day, reversing the generally flat-to-bearish trajectory that started over a week ago.

Any financial market has a tendency to overshoot, and this seems to have been the case with cryptocurrencies in mid-August. The market was particularly concerned with indications by Federal Reserve officials that more interest rate hikes are necessary in order to further dampen inflation.

Higher rates usually result in a flight to quality, as investors sell out of risky assets — such as cryptos — in favor of more conservative ones. In light of that, it wasn’t shocking that many holders of Bitcoin and other digital coins and tokens made the shift. Inflation continues to be a major topic of discussion and a top source of worry.

And where Bitcoin goes, the rest of the crypto market usually follows.

That stands to reason as the coin is not only the one most readily identified with cryptocurrencies, it is far and away the most heavily capitalized. According to Coinbase data, its market cap currently stands at a mighty $515 billion. That’s well more than runner-up Ethereum, with just under $202 billion, and it also exceeds the stock-market caps of numerous popular and famous names on the stock market.

Now what

So is this the beginning of a new, sustained rally for cryptocurrencies?

I don’t think we should expect this. Bitcoin, Ethereum, and the rest make the most dramatic moves when there’s dramatic news in the headlines. For example, when there’s a fresh rate hike or another crypto scandal on the negative side; contrarily, when there’s a new adoption by a big company or central bank in the positive realm.

We can’t predict many sudden events like this, of course, but the current waters seem relatively calm. I wouldn’t put a lot of faith in digital assets rising consistently over the next few days.

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Eric Volkman has positions in Bitcoin and Ethereum. The Motley Fool has positions in and recommends Bitcoin, Coinbase Global, and Ethereum. The Motley Fool has a disclosure policy.

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