Bitcoin, XRP Soar. Here's the Risk to the Crypto Rally. — Barrons.com

By Elsa OhlenBitcoin continued to rally Friday, but it was the smaller cryptocurrencies Ether and XRP that were seeing the biggest gains to end a week that has reignited investors' risk appetite for digital assets.Bitcoin was up 3.6% to $102,945 over the last 24 hours, according to CoinDesk data. The world's largest cryptocurrency crossed $100,000 for the first time since early February on Thursday afternoon and briefly passed the $104,000 mark overnight.Altcoin Ether led the gains among the big cryptos, soaring 16% to $2,307. XRP and Solana rose 5.6% and 7.4%, respectively. All cryptocurrencies are fairly volatile assets, but altcoins often experience more extreme moves in either direction.Trade developments between the Trump administration and trading partners played a big role in crypto's recent surge. On Thursday, the U.S. and the U.K. announced a trade agreement — the first since Trump declared sweeping global tariffs on April 2, or "Liberation Day."U.S. officials are set to meet their Chinese counterparts over the weekend for talks, which may lead to a de-escalation of the trade war between the world's two biggest economies. On Friday morning, Trump suggested tariffs on China could be lowered to 80%, down from 145% currently.Comments from Coinbase, the largest crypto exchange in the U.S., also fueled optimism in the market."[The first quarter] marked a turning point in the U.S. policy landscape — shifting from gridlock to tangible momentum. Across legislation, regulation, and litigation, the direction of travel is clear: progress," Coinbase said in a letter to shareholders late Thursday."The crypto market sentiment index reached 73, which is only a couple of steps away from extreme greed and is the highest since late January," said FxPro analyst Alex Kuptsikevich.While Bitcoin and other cryptos have seen impressive gains this week — the former is up roughly 10% since early Monday — there are risks to the rally.If more significant trade agreements don't materialize before the 90-day pause on the bulk of Trump's "reciprocal" tariffs expire in July, most economists agree that will push inflation higher. That would prompt the Federal Reserve to keep interest rates higher for longer, with higher borrowing costs hampering investors' appetite for riskier assets like cryptocurrencies.In the central bank's latest decision to keep interest rates steady at 4.25%-4.5%, Fed chair Jerome Powell said tariffs contribute to elevated uncertainty around inflation.While the U.S.-U.K. trade agreement is the first of what Trump says is "many other deals, which are in serious stages of negotiation," there's reason for skepticism. Stakes were relatively low for a deal with the U.K. as the country sells only about as much to the U.S. as it buys, meaning future deals could be much harder to secure.Write to Elsa Ohlen at [email protected] content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.