Most cryptocurrencies fell Wednesday, as investors start to turn their attention to the Federal Reserve's upcoming meeting later this month and try and figure out what the Fed will do.
Over the last 24 hours, the price of the world's largest cryptocurrency, Bitcoin (BTC 2.04%), traded roughly 4.5% lower as of 10:35 a.m. ET today. The price of the world's second-largest cryptocurrency, Ethereum (ETH 3.87%), traded roughly 6.8% lower, and the price of Cardano (ADA 4.13%) traded 5.5% lower.
Markets are coming off an August jobs report last week that still suggests the labor market is strong. The U.S. added 315,000 jobs in August, which beat estimates. The U.S. unemployment rate also ticked higher in August and now sits at 3.7%, which is still a very healthy number.
The job market is weird in the sense that while economists want to see a healthy labor market, the Fed almost needs to see some deterioration to stop hiking interest rates. This makes riskier assets like cryptocurrencies less appealing to invest in.
The longer and more aggressively the Fed raises rates, the worse it will likely be for the likes of Bitcoin and Ethereum. The Fed is expected to raise its benchmark overnight lending rate by 0.50% or 0.75% at its September meeting and I don't think the recent jobs report has ruled either option out yet. The upcoming reading of the consumer price index (CPI) next week will likely play a big role in the Fed's decision.
In other news, Ethereum next week is expected to complete its long-awaited "merge" in which the network will cease operating on a proof-of-work (PoW) mechanism and begin operating on a proof-of-stake (PoS) mechanism.
PoW is when crypto miners use lots of computing power to solve a cryptographic puzzle as fast as possible, which then allows them to validate transactions, form new blocks, and mine tokens. In PoS, miners stake their existing tokens and get entered into what is essentially a lottery system to get the opportunity to validate transactions and earn tokens. PoS is a lot more energy efficient than PoW.
Ethereum had been rising in anticipation of the "merge" yesterday, although the price today appears to be following the rest of the crypto market.
Today's action seems related to much of the same fearful sentiment the market has had all year. If the Fed continues to look hawkish, crypto tends to struggle, similarly to most stocks.
But the job market news wasn't all bad. It was more in line with estimates than July numbers and the small rise in unemployment could actually suggest the Fed is making progress in its bid to bring down inflation -- the tricky part is if unemployment rises too high.
I also think Ethereum's "merge" is going to be a real positive for the network, making it more energy efficient. Other upgrades down the line should also ease congestion on the network and lower transaction fees. Although they could go longer in the near term, I'm bullish on Bitcoin, Ethereum, and Cardano long term.