On Wednesday, investors continued to purchase risk assets, including growth stocks, technology stocks, and cryptocurrencies, following a notable upswing on Tuesday. As these assets are highly correlated, it’s unsurprising they all moved upward in tandem.
The rise in cryptocurrency values is primarily attributed to macroeconomic developments rather than specific changes within the crypto sector itself. Bitcoin saw an increase of 2.9% since the stock market’s closure the previous day, while Ethereum rose by 5.1%, and Dogecoin experienced a 6.2% climb.
There is speculation that tariffs on Chinese imports may soon be reduced. Treasury Secretary Scott Bessent indicated an anticipated “de-escalation” in the trade tensions with China in the “very near future.” The trade war has been a source of concern regarding a potential U.S. recession, contributing to declines in both Bitcoin and the broader market. Recent market movements suggest some alleviation of those concerns.
Should the trade conflict indeed ease and economic activity picks up within the year, it may positively impact various markets, including cryptocurrencies. However, this outcome remains uncertain amidst recent developments.
Bitcoin’s recent surge suggests that its value is more correlated with growth and tech stocks than serving as a hedge. In contrast, gold saw a decline of 3.3% today, following a rise at the end of the previous week and the beginning of this week during market downturns. Bitcoin does not appear to function effectively as an inflation hedge, market hedge, or a stable store of value during volatile periods, behaving instead like a risk asset.
The futures of Ethereum and Dogecoin remain subjects of discussion as the market assesses the long-term trajectory of crypto assets. Despite having more utility built into its blockchain, Ethereum has underperformed Bitcoin significantly, partly due to a lack of improvements in transaction speed and cost. In contrast, blockchains like Solana are gaining market share due to their efficiency.
Dogecoin, initially a meme coin, has shown significant volatility, with its value dropping over 50% since post-election highs and remaining well below its 2021 peak. It continues to behave like a risk asset, and its fundamentals are unlikely to improve without a practical application for the token.
The cryptocurrency market’s future appears promising, but individual tokens face uncertainty. Bitcoin’s status as a store of value is questioned, especially following its decline post-tariff announcements. If inflation were to increase, Bitcoin might experience further declines. Ethereum and Dogecoin retain significant attention, but as developers and businesses seek new blockchain applications, their popularity may wane. Today’s upward movement for Ethereum and Dogecoin may represent a temporary recovery amidst their long-term challenges.
Travis Hoium has positions in Ethereum. The Motley Fool holds and recommends positions in Bitcoin and Ethereum, consistent with its disclosure policy.