Investors continued to buy risk assets on Wednesday, including growth stocks, tech stocks, and cryptocurrencies, following a sharp move higher on Tuesday. And as highly correlated assets, it’s no surprise they’re all up in unison today.
The move in crypto is largely because of macroeconomic news, rather than anything about crypto itself. Bitcoin (BTC 2.72%) is up 2.9% since the stock market closed yesterday, Ethereum (ETH 5.76%) is up 5.1%, and Dogecoin (DOGE 4.01%) is up 6.2%.
The trade war is called off (or is it?)
The speculation today is that tariffs on imports from China will come down in short order after Treasury Secretary Scott Bessent said he expects a “de-escalation” in the trade war with China in the “very near future.”
It’s the trade war that has caused concern that the U.S. will go into a recession, and that has caused a decline in Bitcoin and the market overall. But some of those concerns were alleviated today, at least according to the market’s moves.
If the trade war is indeed easing and the economy picks up later this year, it could be good for markets, including cryptocurrencies. But that continues to be uncertain given all that’s happened in the past month.
Bitcoin’s surge shows where its value is
What’s notable about Bitcoin’s move today is that it’s correlated with growth and tech stocks, not a hedge against them. Gold, for contrast, is down 3.3% today and was up late last week and early this week when markets were crashing.
Bitcoin itself doesn’t appear to be an inflation hedge, market hedge, or a store of value in volatile markets. It’s acting like a risk asset, and that’s how investors should expect it to trade.
Ethereum’s and Dogecoin’s future
While Bitcoin has become a clear risk asset, Ethereum and Dogecoin have more questions around them as the market determines where crypto assets are going long term. Ethereum has underperformed Bitcoin by a wide margin despite more utility for the blockchain built over the last few years. That’s because Ethereum hasn’t improved its speed or cost of transactions, as blockchains like Solana (CRYPTO: SOL) take market share because of their speed and low costs.
Dogecoin was the first meme coin, but buying memes is only fun when the market is going up. Dogecoin is down over 50% since post-election highs and is still well below 2021 highs hit during the peak of the market frenzy. Dogecoin will continue to trade like a risk asset, but it’s hard to see its fundamentals improving without a real use case for the token.
Crypto’s future is bright but tokens face uncertainty
I see moves like today’s as another sign that the crypto market will continue to be extremely volatile and trade along with assets like growth stocks. But unlike growth stocks, there’s less fundamental value behind these tokens.
Bitcoin’s argument for being a store of value hasn’t proven to be true after falling after tariffs were announced earlier this month. And if inflation spikes, we will likely see Bitcoin fall again.
Ethereum and Dogecoin continue to have mind share, but as developers and businesses are looking for more use cases for the blockchain they may lose favor. Today’s move looks like a temporary bounce for Ethereum’s and Dogecoin’s declining fortunes long term.
Travis Hoium has positions in Ethereum. The Motley Fool has positions in and recommends Bitcoin and Ethereum. The Motley Fool has a disclosure policy.