Bitcoin, Ethereum and Dogecoin pulled back from last week’s drop

The crypto market was not immune to last week’s decline on Wall Street due to weak economic news and value Bitcoin (BTC 3.97%), Ethereum (ETH 2.56%)and Dogecoin (DOGE 8.04%) all have dropped sharply in the past week. But the weekend offered us a slight return of values.

Since the market closed on Friday, Bitcoin is up 3.3%, Ethereum is up 3% and Dogecoin is up 7.1% as of noon ET on Monday.

Economic realities and cryptocurrencies

The reason crypto fell as much as it did last week was the relatively weak economic data that permeated the market. The jobs data was weaker than expected and factory orders also indicated the economy may be in contraction mode.

While cryptocurrencies have been called a hedge against the traditional economy and fiat currencies, they tend to trade correlated with growth stocks, which you can see in the chart below.

Bitcoin Price Data by YCharts; ETF = exchange traded fund.

If the economy gets weaker this year and into 2025, it could drive both growth stocks and cryptos lower.

Volatility wins again

Since Friday, we have seen the volatility that cryptocurrencies have been known for over the past four years. Bitcoin has become the bellwether for crypto and will continue to move wildly based on economic data, just like the stock market. Ethereum was supposed to be a utility chain, but it’s stuck waiting for regulators to clarify the rules, and the blockchain itself hasn’t gotten faster or less expensive as promised.

Dogecoin is the only meme currency on the list, and it got a boost from none other than Elon Musk, who tweeted a picture of Dogecoin. It may sound crazy, but a simple tweet can move the markets when it comes to Elon Musk and Dogecoin.

A false start in Congress

We also learned over the weekend that Senate Majority Leader Chuck Schumer, D-New York, left crypto off his list of priorities for Congress, despite saying he expects to pass legislation by the end of of the year.

One of the catalysts for cryptocurrencies this year has been the hope of regulatory clarity for the industry after years of uncertainty. Both parties have campaigned as “pro crypto,” so a move by both developers and investors is expected. This has yet to happen and could eventually become a headwind for the industry.

Catalysts may be gone

In 2024, crypto had some major catalysts, such as the approval of ETFs and the flows it brought to Bitcoin and Ethereum. Policy rhetoric has also become more positive, even if this has not led to new legislation. We are also seeing a massive increase in the use of stablecoins through fast and cheap blockchains, which could unlock some of the technological promise of crypto.

But these tailwinds are starting to fade with speculation and as market reality sinks in. And that has led to $1.2 billion in outflows from Bitcoin ETFs in the last eight days alone. This is not the kind of trend traders want to see.

I think the worsening economy and reduced speculative trading will be bad for crypto over the next year and that is what will drive the market. It might be positive that more activity is happening on the blockchain, but if that activity doesn’t use Bitcoin, Ethereum or Dogecoin as a medium of exchange, it could affect the value of these tokens.