Ethereum
Bitcoin, Ethereum and Dogecoin stage massive rally on Friday
A poor jobs report was good for crypto today.
After a week of bearish trends, Bitcoin (BTC 6.93%), Ethereum (ETH 4.53%), and Dogecoin (DOGE 8.91%) jumped in trading Friday morning.
As of 3 p.m. ET, Bitcoin was up 4.1% from yesterday’s stock close, Ethereum was up 2.6%, and Dogecoin was up 5.6%. And they all moved based on the same information.
Unemployment data and crypto
Crypto stocks surged as the US Department of Labor released April 2024 employment data. The US added 175,000 jobs last month and the unemployment rate increased slightly to 3.9%.
Economists expected 235,000 new jobs and an unemployment rate of 3.8%.
Revisions may be made to the initial data, but the market will often react only to the main report. And that’s exactly what happened with the crypto market’s reaction just seconds after the report was released.
Does unemployment really impact crypto?
The question really is what this news has to do with cryptocurrencies. Many market participants believe that a worsening economy means the Federal Reserve will cut rates more quickly. Current expectations are for a rate cut in September, but there may be no rate cut this year if inflation remains high.
This is about keeping rates higher if the economy weakens, because lower rates can be a catalyst for greater economic activity.
I also wonder if rates actually have a big impact on cryptocurrencies. Aside from increased speculation, falling rates in most cases have no fundamental impact on the crypto market.
Higher rates are bad for crypto meme
While Bitcoin has solidified its position as a form of digital gold and Ethereum is commonly known as a more utilitarian blockchain with many scaling solutions, Dogecoin could be hit the hardest if rates stay there where they are and the economy is deteriorating.
Dogecoin is a meme coin with no real utility and this meme position will be difficult to maintain if people have fewer funds to spend on speculative assets. I think that explains today’s reaction.
This is part of the normal volatility of the crypto market, but it also highlights that ultimately the meme that started in 2020 may not hold much water.
Caution in crypto today
The crypto market is booming in 2024 despite higher interest rates and signs of a weakening economy. And there has also been the tailwind of the approval of Bitcoin exchange-traded funds (ETFs) in the United States.
But some market tailwinds may fade, which won’t be good for long-term valuations unless there is a significant increase in the utility of cryptocurrencies. Bitcoin became more expensive after the last halving and Ethereum did not prove very profitable either.
Dogecoin has very little utility and has focused on its meme status, which can come and go.
I think a day like today is the time to take some chips off the table when it comes to crypto, as the market is indicating that the fundamentals of the economy going forward are weaker. Like it or not, the economy and the Fed remain the main drivers of crypto in the long term.
Travis Hoium has positions in Ethereum. The Motley Fool posts and recommends Bitcoin and Ethereum. The Mad Motley has a disclosure policy.