Crypto markets are rallying ahead of the weekend as investors digest a better-than-expected jobs report from the world’s largest economy.
Ether continues to outperform Bitcoin as investors pile in ahead of the long-awaited Merge, Ethereum’s transition to an eco-friendly proof-of-stake consensus mechanism that’s now slated for September. The ETH/BTC ratio has climbed to 0.074, its highest level since May.
Hot Jobs Market
According to the Aug. 5 release from the Bureau of Labor Statistics, the U.S. added 528,000 jobs in July and the unemployment rate has dropped to 3.5%. Markets initially reacted negatively to the numbers, with Ethereum dropping 2.3% from $1,718 to $1,668 and Bitcoin diving 3.9% from $23,409 to $22,489.
While an increase in employment numbers sounds great, this could actually be a headwind for the crypto market. Many believe that due to the strong jobs market, the Fed will continue to hike interest rates to adjust for higher wages and more spending, in its quest to tackle inflation. Rising rates are generally considered negative for investors placing their money in riskier assets like crypto.
The Federal Funds rate is currently at 2.33%, but a hike in rates elevates short-term borrowing costs for financial institutions, which in turn, pass on those costs to people and businesses through higher interest rates on mortgages and loans.
“When rates go up the opportunity cost of holding commodities goes up too, which will hurt gold, bitcoin and ether,” Scott Lewis, the co-founder of DeFiPulse, told The Defiant. That being said, Lewis mentioned that “crypto has so much volatility from other sources, you may not really feel it.”
Because of the natural volatility of crypto, Josh Rosenthal, Partner at 6ixth Event Capital, was similarly uncertain about the report’s direct impact on web3.
“We might be at bad news is good news or vice versa,” Rosenthal told The Defiant. Because of the high national debt, Rosenthal believes that the Fed “can only inflate to a point” and that we won’t see a repeat of the 1970-80s with double-digital rates. He explained that the best case is that the Fed “prints like mad while keeping sustained-ish [sic] inflation.”
San Francisco Fed President Mary Daly recently said in an interview with Reuters that the Fed would “look at the data coming in,” as a basis for future rate decisions. She went on to say that if the labor market kept growing, another 0.75% increase may be appropriate.