The crypto market was in free fall over the weekend, with most tokens fell double digits or more after strong economic data was released. Friday's jobs report showed 256,000 more jobs in the economy in December and unemployment down to 4.1%, which was better than most economists expected.
You may think excitement would have been the reaction by the market, but the opposite is what we saw. Since the market closed on Friday, Chainlink (LINK 1.34%) is down 9.3%, Aptos (APT 1.40%) is off 12.3%, Uniswap (UNI 1.99%) is down 11%, and Sui (SUI 1.51%) has fallen 13.6%.
CRYPTO: LINK
Key Data Points
A good economy is bad for crypto?
Early last week, good economic data started coming out, and that hurt crypto values. The end of the week wasn't any better with the better-than-expected jobs report.
This week's focus is now on inflation, specifically the Consumer Price Index inflation report due on Wednesday. Consensus estimates is for a 2.8% increase in prices in December versus a year ago, and if the reading is higher than that, it could give the Federal Reserve license to raise interest rates to slow a potentially overheating economy and tame inflation, rather than cut rates.
Bond investors are already worried about rates, pushing 10-year U.S. government bond yields to 4.79%, up 39 basis points from a month ago. A hotter economy means stimulus isn't needed, and that's not what crypto investors want to hear.
Buy the rumor, sell the news
We are also getting closer to President Trump's inauguration, and rather than speculating on all the good things that might happen, investors are focusing on what will become a reality in the first few months.
Better operating conditions for crypto companies are likely on the way, but how will that flow to tokens? It's not clear at this moment.
At the same time, higher interest rates will cause investors to look for safer assets than crypto as yields rise. If a bond returns 6% or more without much risk, why bet on a token that could go to zero?
Utility tokens and utility
We have also seen the dubious value generated by utility tokens, which Chainlink, Aptos, Uniswap, and Sui all are. They have tokenomics, but that's not the same as a traditional business model. In addition, if the medium of exchange for the blockchain is stablecoins, which are gaining adoption, then what role will cryptocurrencies play?
These are all questions investors are asking after a great run in cryptocurrencies. And when even the biggest tokens are falling, it's not surprising to see altcoins drop as well.
The future of crypto
Don't be surprised to see the sell-off continue, especially if growth stock multiples come down in 2025. Cryptocurrencies trade correlated to growth stocks, and they've had a great run in the past year, but many are trading for very high historical multiples.
New legislation, while good for the industry, may also see value accrue to some tokens or new blockchains and stablecoins, which these altcoins don't fall into. Without buying momentum, don't be surprised to see crypto and altcoins fall more in 2025.
