What happened
The price of several cryptocurrencies and crypto-related stocks moved higher today for no obvious reason, but as investors prepared for new economic data and for earnings season to kick off later this week.
Since late afternoon yesterday, the price of the world's largest cryptocurrency, Bitcoin (BTC 1.30%), traded 3.8% higher as of 3:37 p.m. ET today.
Meanwhile, shares of the large crypto exchange Coinbase Global (COIN -3.24%) traded 5.5% higher during normal trading hours, while shares of the Bitcoin miner Riot Platforms (RIOT 10.13%) traded nearly 15% higher.
So what
Because the markets were closed Friday, the market didn't get to react to the March jobs report until today. The U.S. economy added 236,000 jobs in March, which does represent a slowdown in hiring and was in line with estimates. However, the unemployment rate ticked down to 3.5% as the labor force participation rate increased.
Image source: Getty Images.
Still, that's a healthy month of hiring, and following the report traders increased their bets that the Federal Reserve would increase interest rates at its May meeting. Rising interest rates crushed Bitcoin in 2022.
Yet in another report that came out today from the Federal Reserve Bank of New York, consumers said that accessing credit in March got more difficult and is the toughest it's been since 2014. Since the banking crisis started, banks have been expected to tighten credit, which could chill the economy and potentially even trigger a recession. This might entice the Fed to cut interest rates, which has historically been good for riskier assets like Bitcoin.
Additionally, analysts from Bernstein in a research note today said that investors' rising interest in gold should also lead to a rise in interest in Bitcoin. The analysts said they see more investors expecting a hard landing for the economy, which will trigger rate cuts and a weakening dollar, which has led them to start favoring gold as a hedge.
"When there is a massive monetary debasement event, while both Bitcoin and Gold rally, Bitcoin outperforms Gold," the analysts wrote. "For example, post-Covid monetary printing, Bitcoin outperformed Gold (2.9x over ~3.5 years). In fact, even this year, since the banking crisis fears have escalated, Bitcoin rallied ~71% YTD vs. Gold rallying ~10% YTD."
When Bitcoin trades up other crypto stocks tend to follow. Coinbase benefits when there is increased trading activity in cryptocurrencies, while Riot benefits because the asset that the company mines, Bitcoin, is increasing in value.
Now what
I think the economic data has been somewhat conflicting recently. Traders have been penciling in rate cuts this year, which would likely favor Bitcoin and crypto, but the Friday jobs report also hints that inflation hasn't been tamed yet. The Fed is now expected to do another quarter-point hike at its May meeting.
Still, there will be new key inflation data out Wednesday, and then bank earnings kick off Friday. Both of these events could still change the trajectory of the Fed, so you'll want to keep an eye on them.
While I expect volatility, I do think Bitcoin is a cryptocurrency worth having at least a little bit of exposure to, and I would expect Bitcoin to benefit from a weakening dollar or a rate cut. Currently, I am not interested in Coinbase or Riot because of the enhanced regulatory environment around crypto companies, although both will likely benefit if Bitcoin rises. I just prefer Bitcoin.
