Since Sunday afternoon, the price of the meme tokens Shiba Inu (SHIB 4.60%) and Dogecoin (DOGE 7.54%) traded 5.5% and 8.5% higher, respectively, as of 10:50 a.m. ET. Meanwhile, the price of ApeCoin (APE 11.66%) was up about 15%.
The main reason for crypto bullishness seems to be linked to investors growing more confident that inflation is slowing, which would hopefully lead to the Federal Reserve ending its interest rate hiking campaign sooner rather than later.
To combat some of the highest levels of inflation seen in four decades, the Federal Reserve raised its benchmark overnight lending rate from zero at the beginning of the year to inside a range of 4.25% to 4.5%, a huge jump in a very quick period of time.
This really crushed the crypto market because it created a risk-off environment for investors, who fled riskier assets and flocked to safer assets that now had higher yields because of the rate hikes. Crypto is one of the riskiest assets in the market because there’s no real way to truly value cryptocurrencies.
But over the last few months, consumer prices have been rising at a much slower pace making some investors think that inflation has peaked and will continue cooling.
On Friday, the U.S. Bureau of Labor Statistics reported that the U.S. added 223,000 jobs in December but investors were more excited about the fact that hourly wages climbed at the slowest pace in December in 16 months. This could be a hint that wage growth is slowing, which could eventually lead to further deterioration in the labor market.
Fed Chair Jerome Powell has said the labor market needs to show further cracks to support the idea that inflation is slowing but the unemployment rate has remained stubbornly low. If the Fed’s rate hikes can ease inflation without sending unemployment soaring then the Fed may succeed at achieving a soft landing.
In an interview with Reuters, Simona Mocuta, chief economist at State Street Global Advisors, called Friday’s jobs data “the embodiment of the soft landing narrative — this idea that can you have a strong labor market with slowing wage growth.” She added: “You can kind of, in this case, have your cake and eat it too.”
A pivot by the Fed or even a rate cut this year, which many investors think is possible, would be good for stocks as well as cryptos, potentially getting investors to once again take more of a risk-on approach. Keep an eye on new inflation data coming out this Friday.
Although I am not personally a fan of Shiba Inu and Dogecoin, these are two top-20 cryptocurrencies in terms of market cap, so if there is a Fed pivot or rate cut and the crypto market bounces, I would expect these two cryptocurrencies to benefit as well.
ApeCoin is an interesting altcoin because of its ties to the Bored Ape Yacht Club, which at one point during the pandemic saw some non-fungible tokens (NFTs) in its collection sell for hundreds of thousands of dollars.
But with the NFT market always being somewhat of a mystery and the crypto market in a crypto winter and also dealing with the fallout of the FTX bankruptcy, the only cryptocurrencies I really like right now are the largest and most established, like Bitcoin.