Stock markets reached 52-week highs this week following a pair of promising economic announcements.

Markets inched higher on Tuesday as headline inflation came in at 4% for May as compared to 4.1% predicted by analysts. The latest news marks the eleventh consecutive month of declines since inflation peaked in June of 2022.

The news was followed by a welcome announcement on Wednesday from the Federal Reserve. As expected, the central bank announced they were pausing rate hikes but were prepared to resume raising interest rates if inflation re-emerged.

Although the S&P initially sold off as the market digested the cautionary tone, markets turned positive by the afternoon.

The pause in rate hikes marks a critical test for the central bank.

Much like groundhog day, the bank will be watching for any signs of the inflationary goffer in the coming weeks.

At this point, the Fed will be looking for signs that inflation can continue its downward trend at current interest rates.

If inflation holds still and doesn’t improve, the Fed could very well resume raising interest rates later this summer.

Worse still, I expect the Fed would move swiftly and dramatically if we see inflation get worse.

The Impact on Cryptocurrencies

Bitcoin and Ethereum sold off roughly 5% on the news.

Cryptocurrencies have performed well since the beginning of the year in part because of inflationary concerns.

Bitcoin and Ethereum are both deflationary by design and are believed to be a hedge against inflation.

However, the Fed's ability to get a handle on inflation may have investors concerned that investors might be less interested in cryptocurrency in the absence of dollar inflation.

The news was the latest in a series of setbacks for cryptocurrency in recent weeks…

In March, regulators from the Securities and Exchange Commission (SEC) announced their intention to pursue legal action against Coinbase. The case represents just one of several active investigations by the SEC into the world's largest cryptocurrency exchanges.

Despite the recent selloff, I continue to remain bullish on the cryptocurrency opportunity.

Earlier this year Ethereum completed its transition away from energy-intensive mining into a more sustainable ‘staked’ blockchain.

That transition not only improved the environmental friendliness of Ethereum but also allows Ethereum investors to earn a yield on their holdings and lays the groundwork for a faster and more scalable blockchain.

The issue of cryptocurrency regulation is nothing new. Smart investors in the space have long known that it was only a matter of time before regulators intervened.

However, I believe that regulators are unlikely to be successful in their attempts to control cryptocurrency.

Already we’ve seen a large variety of policies on cryptocurrency around the world as politicians seek to establish their countries as leaders in the space.

The worldwide reach of the internet makes it really hard to enforce rules for cryptocurrencies.

I continue to remain optimistic about the potential for Ethereum and other top cryptocurrencies and believe the recent selloff presents a compelling buying opportunity.