Fed hawkishness triggers crypto declines

Yahoo Finance's David Hollerith discusses how Fed policy has hit crypto markets as well as the SEC's lawsuit against Ripple.

Video Transcript

AKIKO FUJITA: Well, taking a look at the crypto space today, moving this morning as markets digest the Fed's hawkish moves. Take a look at Bitcoin, still below that $19,000 handle. Ethereum up about 1 and 1/2% right now.

Let's bring in Yahoo Finance's David Hollerith in the flesh with us in studio today. And David, we were talking about this off camera. The correlations that we've seen with crypto moving in tandem with the equity space, so much of this is about what's happening in the macro space. But you said that you're starting to see a bit of a divergence.

DAVID HOLLERITH: Yeah, so yesterday-- well, leading up to the FOMC, everybody-- all the analysts I'd spoken with pretty much made it clear that crypto was not going to fare well following the decision. And it's actually held up better than expected. And that break in correlation that we saw yesterday is sort of returning now.

So sometimes cryptocurrencies, because they trade 24/7, will just lead stocks. We're still kind of watching. I've heard other people say that it might be shorts having to cover. So we'll have to do a wait and see here. But the expectation was that cryptocurrencies were going to fall a lot more following that Fed decision. So it's interesting, and it says a lot about the investors in the sector right now.

AKIKO FUJITA: Well, and I thought it was interesting. You were at a crypto conference here in New York earlier this week. And so many people are watching the Fed decision. Not necessarily something we would have said, what, a few years ago. But the other thing that made headlines there were some comments coming from Ripple's Brad Garlinghouse, as he faces this lawsuit from the SEC. What's the very latest on that?

DAVID HOLLERITH: Sure, yeah, so the Ripple SEC lawsuit has caught a lot of attention since Saturday. What happened was the SEC sort of released their motion. And then Ripple sort of replied in a rushed fashion between Saturday and Sunday to sort of issue their statements, too. And essentially, they're-- both sides of the case are asking for the judge to come up with a decision to see whether or not it has to be brought into court.

And this is, of course, about whether or not XRP, the cryptocurrency, is considered a security. The SEC thinks it is. And Ripple Labs says it's not. And that comes down to whether or not it's an investment contract, which I won't go into too much detail there. But Ripple is up 45% right now. And I won't draw a conclusion there, but I think investors are pretty happy.

Garlinghouse has come out as sort of saying that this lawsuit has dragged on for-- I mean, it's been going on for two years. But it's interesting outside of the Ripple company because for the overall crypto community, like, a lot of people are really seriously looking at this lawsuit as a way that might actually bring clarity regardless of who it rules in favor for.

AKIKO FUJITA: Not just for Ripple, but for the broader space.

DAVID HOLLERITH: Yeah, yeah. And so everyone's watching that, but the truth is, for that to really happen, it needs to go to court. And Ripple is sort of, like, saying that they don't think it does. So we'll see what happens. But if it does go to court, it'll be dragged out longer, probably will not be settled by the end of the year. But it will be a major decision about whether or not certain cryptocurrencies are deemed securities, so.

AKIKO FUJITA: So more uncertainty in at least the short-term.

DAVID HOLLERITH: Yeah, yeah, yeah, through the end of the year. But we're going to see more motions in the case. And we'll see how it's progressing in terms of whether or not Ripple has more evidence on their side or the SEC, what's going on there. An interesting thing is that a third party has stepped in recently, a blockchain lobbying firm, the Chamber of Digital Commerce. And they're basically coming in as a third party. They've been approved by the judge. And that should make things interesting.

AKIKO FUJITA: OK. It will make your next few months interesting. David Hollerith, appreciate you staying on top of the story. Good to have you in studio again.

DAVID HOLLERITH: Yeah, it's great to be here.