Bitcoin Drags Crypto Lower on Strong US Economic Data

The irony of the crypto market is how much it falls when the economy is doing well. On Tuesday, a couple of important economic readings came out better than expected, and Bitcoin (CRYPTO: BTC) and other cryptocurrencies have fallen on the news.

As of 4:30 pm ET, Bitcoin is down 4.9% in the last 24 hours, ethereum (CRYPTO: ETH) was off 7.4%, and Dogecoin (CRYPTO: DOGE) is down 8.9%. Momentum appears to be putting more upward pressure on the market, so those declines could worsen as the US stock market closes.

The ISM Services PMI – which measures an index of services and their orders, backlog, business activity, and other items – rose to 54.1 in December from a reading of 52.1 in November. A reading over 50 indicates economic expansion, so it was a bullish reading for the economy.

The other reading was job openings from the Bureau of Labor Statistics, which came to 8.1 million, from 7.8 million and beating the estimate of 7.7 million by economists.

Both are strong economic indicators, but they also come with warnings that companies are worried about higher costs and inflation. That could lead the Federal Reserve to be less accommodative in 2025 and potentially raise interest rates if inflation picks up.

Crypto, especially Bitcoin and meme coins like Dogecoin, trade highly correlated with risk assets like growth stocks. When investors speculate that interest rates will rise, these assets fall in value. It’s no surprise that growth stocks are also down today.

The better-than-expected news caught crypto investors off guard, leading to $457 million in long positions being liquidated as values ​​fell. Crypto trading can often be highly leveraged, and if that leverage is cleared when values ​​move higher or lower, it can cause an amplification of the underlying market trend.

Bitcoin has not proven to be a hedge against inflation as it has been sold. Instead, it fell when inflation was higher and rose over the last two years as inflation fell. It doesn’t look like this trend will change anytime soon.

The catalysts that drove the rise of crypto in the fall of 2024 are also starting to wear off. Investors believe that the election will lead to reduced regulations in the United States and a more certain operating environment for crypto companies. That may still be the case, but it will probably take months or years for real innovations to impact the crypto market.

Even when this happens, Bitcoin and Dogecoin may not be where the innovation takes place. I think a blockchain like Ethereum is the most likely to benefit from blockchain innovation, but even then, it may not benefit the token itself.

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