Saturday, 5 October 2024
by BD Banks
Several cryptocurrencies bounced higher this morning as new economic data came out and as the trajectory of oil prices continued to come into focus because of mounting tensions in the Middle East.
The price of the meme tokens Dogecoin (CRYPTO: DOGE) and Shiba Inu (CRYPTO: SHIB) traded nearly 3% and 9% higher, respectively. The price of Avalanche (CRYPTO: AVAX) was up about 4%.
Deciphering the moves of cryptocurrencies can be hard. But we know that cryptocurrencies are heavily influenced by the strength of the U.S. dollar, which is influenced by factors including interest rates and oil prices. Both of these have been on the radar this week.
Earlier this morning, the U.S. Bureau of Labor Statistics (BLS) reported that the U.S. economy added $254,000 jobs in September, a blowout compared to economists’ expectations of only 150,000 new jobs. The unemployment rate fell 10 basis points from August to 4.1%, and average hourly wages grew 0.4% from the prior month and are now up 4% year over year. Both of those numbers beat consensus.
This data shows a strong economy with a healthy labor market, and that means the Federal Reserve cut interest rates more slowly than previously expected. Following the jobs report, nearly 95% of traders betting on the path of the federal funds rate expect the Fed to do a quarter-point hike in November. That’s up from 68% yesterday. Furthermore, the majority of traders now expect interest rates to fall only to between 3.25% and 3.50% by the end of 2025. Just a few days ago, many believed rates could dip below 3% by the end of next year.
Image source: Getty Images.
Fewer interest rate cuts than expected could lead to less weakness in the dollar than expected, which may not be so good for cryptocurrencies. On the other hand, cryptocurrencies could benefit as the rise of oil prices slows. Over the last five days, crude oil futures are up more than 8.6%, reflecting concern that Israel may eventually strike some of Iran’s oil reserves or infrastructure.
Today, oil futures are up less than 1%, despite war continuing in the Middle East. Experts believe most investors are still pricing oil over the longer term.
“There is a very large short position, not only in oil, you see it in equities,” Carlyle’s chief strategy officer, Jeff Currie, told CNBC recently. “In general, the investors don’t like this space. Why? They are concerned about a big oil supply glut next year.”
Frankly, I am surprised to see any cryptos benefiting today, given the strong jobs report that is likely to slow the Fed’s path on interest rate cuts. Oil prices may also move higher. Both factors suggest a strengthening dollar.
But investors might be buying the dip after a big crypto sell-off this week, and altcoins like Dogecoin, Shiba Inu, and Avalanche will be more volatile. They could benefit today as investors think longer-term about oil. But I have no interest in investing in these altcoins right now. If you do, I’d recommend only a small, speculative position, and make sure you have the risk tolerance to own these volatile digital assets.
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Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Avalanche. The Motley Fool has a disclosure policy.