Bitcoin
Bitcoin, Ethereum and Dogecoin make a massive rally on Friday
A bad jobs report was good for crypto today.
After a week of lower trends, Bitcoin (Bitcoin 0.75%), Ethereum (ETH -0.03%), and Dogecoin (DOGE 6.85%) jumped in Friday morning trading.
As of 3pm ET, Bitcoin was up 4.1% from yesterday’s stock market 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 Values Jumped as the US Department of Labor released April 2024 jobs data. The US added 175,000 jobs last month and the unemployment rate rose slightly to 3.9%.
Economists expected 235,000 new jobs and an unemployment rate of 3.8%.
There may be revisions to the initial data, but the market will often only react 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 Affect Crypto?
The question is really about what this news has to do with cryptocurrencies. Many market participants think that a deteriorating 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 cuts this year if inflation remains high.
It’s a balance to keep rates higher if the economy weakens, because lower rates can be a catalyst for more economic activity.
I also question whether or not fees actually have any impact on cryptocurrencies. Outside of further speculation, lower rates have no fundamental impact on the crypto market in most cases.
Higher Fees 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 the most impacted if rates stay where they are and the economy worsens.
Dogecoin is a meme currency 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 the reaction today.
This is part of the normal volatility of the crypto market, but it also highlights that eventually the meme that started in 2020 may not hold much water.
Be careful in crypto today
The crypto market is in crisis heading into 2024 despite higher interest rates and signs that the economy is getting weaker. And there was also tailwind from the approval of Bitcoin exchange-traded funds (ETFs) in the US
But some of the market tailwinds may be waning and that won’t be good for long-term valuations unless there is a significant increase in the utility of cryptocurrencies. Bitcoin is getting more expensive after the most recent halving and Ethereum has not proven to be very profitable either.
Dogecoin has very little use and has focused on its meme status, which can come and go.
I think a day like this is the time to take some chips off the table in crypto as the market telegraphs that there are weaker fundamentals for the economy ahead. Like it or not, the economy and the Fed are still the biggest drivers of crypto in the long term.
Travis Hoium has positions in Ethereum. The Motley Fool has positions and recommends Bitcoin and Ethereum. The motley fool has a disclosure policy.