After a week of lower trends, Bitcoin (CRYPTO: BTC), Ethereum (CRYPTO: ETH), and Dogecoin (CRYPTO: DOGE) jumped in trading on Friday morning.
As of 3 p.m. ET, Bitcoin was up 4.1% versus yesterday’s stock market close, Ethereum had risen 2.6%, and Dogecoin was up 5.6%. And they all moved based on the same piece of information.
Unemployment data and crypto
Crypto values jumped the moment the U.S. Labor Department released April 2024 jobs data. The U.S. added 175,000 jobs last month and the unemployment rate rose slightly to 3.9%.
Economists were expecting 235,000 new jobs and an unemployment rate of 3.8%.
There can be revisions to initial data, but the market will often react solely to the headline report. And that’s exactly what happened with the crypto market’s reaction only seconds after the report was released.
Does unemployment really impact crypto?
The question is really about what this news has to do with cryptocurrencies. Many market participants think a worsening economy means the Federal Reserve will lower rates more quickly. Current expectations are for a September rate cut, 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 rates really have much of an impact on cryptocurrencies at all. Outside of more speculation, lower rates don’t have any fundamental impact on the crypto market in most instances.
Higher rates are bad for the crypto meme
While Bitcoin has solidified its position as a form of digital gold and Ethereum is commonly known as a more utility blockchain with many scaling solutions, Dogecoin could be the most sharply impacted if rates stay where they are and the economy gets worse.
Dogecoin is a meme coin with no real utility and that meme position will be tough to hold 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.
Caution in crypto today
The crypto market has been on a tear in 2024 despite higher interest rates and signs the economy is getting weaker. And there was also the tailwind from the approval of Bitcoin exchange-traded funds (ETFs) in the U.S.
But some of the market’s tailwinds may be subsiding and that won’t be good for valuations long term unless there’s a significant increase in the utility of cryptocurrencies. Bitcoin is getting more expensive after the most recent halving and Ethereum hasn’t proven to be very cost-effective either.
Dogecoin has very little utility and has been focused on its meme status, which can come and go.
I think a day like this is a time to take some chips off the table in crypto as the market telegraphs there are weaker fundamentals for the economy ahead. Like it or not, the economy and the Fed are still the biggest drivers of crypto long term.
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