As noted in last Wednesday’s newsletter, macroeconomic factors are significantly impacting the crypto market and are clearly in the driver’s seat. With the rollout of spot Bitcoin ETFs last year, traditional market forces are playing a substantial role in driving Bitcoin’s price.

This was fully evident at Friday morning's market open. After the Labor Department released better-than-expected employment numbers, both global equities and crypto experienced a downturn. Strong labor market data signals a healthier economy, which might prompt the Federal Reserve to slow down its pace of rate cuts or even consider raising rates to prevent the economy from overheating. Higher interest rates generally lead to tighter financial conditions, reducing risk appetite and putting downward pressure on asset prices, including crypto.

In the first few minutes of the session, crypto traded almost in lockstep with the Nasdaq. This has been a recurring trend over several sessions. According to Greg Guttas at Flowdesk, the opening price action has been "ruthless," or as I would describe it, brutal, with high volumes and extreme volatility.

Guttas explained, "It's probably a function of ETF traders holding a 24/7 asset that they can only trade 6.5 hours a day."

As we move into the new year, the question remains: Will the positive tailwinds for crypto—such as a favorable regulatory environment, the potential entry of banks with new prime brokerage offerings, and the rebuilding of credit markets—offset the negative macroeconomic headwinds? If the current market sentiment is any indication, the answer seems to be no.

Stay alert, crypto.

The Block’s Frank Chaparro serves up the latest headlines, charts, trends, and views on crypto and DeFi from around The Block, Twitter, and The Scoop pod. Subscribe to The Scoop newsletter, which hits inboxes on Tuesday and Friday mornings.

Disclaimer: The Block is an independent media outlet that delivers news, research, and data. As of November 2023, Foresight Ventures is a majority investor of The Block. Foresight Ventures invests in other companies in the crypto space. Crypto exchange Bitget is an anchor LP for Foresight Ventures. The Block continues to operate independently to deliver objective, impactful, and timely information about the crypto industry. Here are our current financial disclosures.

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