The crypto market wasn’t immune from last week’s Wall Street drop on weak economic news, and the value of Bitcoin (BTC 3.91%), Ethereum (ETH 2.52%), and Dogecoin (DOGE 7.99%) are all down sharply over the past week. But the weekend did give us a slight recovery in values.
Since the market closed on Friday, Bitcoin has risen 3.3%, Ethereum has risen 3%, and Dogecoin has risen 7.1% as of noon ET on Monday.
Economic realities and cryptocurrencies
The reason crypto dropped as much as it did last week was the relatively weak economic data that permeated the market. Jobs data was weaker than expected, and factory orders also indicated the economy could be in contraction mode.
While cryptocurrencies have been dubbed as a hedge against the traditional economy and fiat currencies, they tend to trade correlated to growth stocks, which you can see in the chart below.
Bitcoin price data by YCharts; ETF = exchange-traded fund.
If the economy gets weaker this year and into 2025, it could drive both growth stocks and crypto values lower.
Volatility wins again
Since Friday, we’ve seen the volatility that cryptocurrencies have been known for over the past four years. Bitcoin has become the bellwether for crypto and will continue to move wildly based on economic data, just like the stock market does. Ethereum was supposed to be a utility chain, but it’s stuck waiting for regulators to clarify rules, and the blockchain itself hasn’t gotten faster or less expensive as promised.
Dogecoin is the one meme coin on the list and got a boost from none other than Elon Musk, who tweeted a Dogecoin picture. It may sound crazy, but a simple tweet can move markets when it comes to Elon Musk and Dogecoin.
A false start in Congress
We also learned over the weekend that Senate Majority Leader Chuck Schumer, the New York Democrat, left crypto off his list of priorities for Congress despite saying he expects to pass legislation by the end of the year.
One of the catalysts for cryptocurrencies this year has been the hope of regulatory clarity for the industry after years of uncertainty. Both parties have campaigned as being “pro crypto,” so some movement is expected by both developers and investors. That hasn’t happened yet and could ultimately become a headwind for the industry.
Catalysts might be gone
Coming into 2024, crypto had some major catalysts like the approval of ETFs and the inflows that it brought to Bitcoin and Ethereum. The policy rhetoric has also become more positive, even if that hasn’t led to new legislation. We’re also seeing massive growth in stablecoin use across fast, cheap blockchains, which could unlock some of the technology promise of crypto.
But these tailwinds are starting to fade along with speculation and as the reality of the market sinks in. And that led to outflows from Bitcoin ETFs of $1.2 billion in just the last eight days. That’s not the kind of trend traders want to see.
I think the worsening economy and reduction in speculative trading will be bad for crypto values over the next year, and that’s what’s going to drive the market. It might be positive that more activity is happening on the blockchain, but if that activity isn’t using Bitcoin, Ethereum, or Dogecoin as a medium of exchange, it could hurt the value of these tokens.
Travis Hoium has positions in Ethereum. The Motley Fool has positions in and recommends Bitcoin, Ethereum, and Vanguard Index Funds-Vanguard Growth ETF. The Motley Fool has a disclosure policy.
