Why Bitcoin, Ethereum and Cardano are falling today

What happened

Most cryptocurrencies fell on Wednesday as investors begin to turn their attention to the Federal Reserve’s upcoming meeting later this month and try to figure out what the Fed will do.

Over the past 24 hours, the price of the world’s largest cryptocurrency, Bitcoin (BTC -4.74%), was trading about 4.5% lower as of 10:35 a.m. ET today. The price of the world’s second largest cryptocurrency, Ethereum (ETH -7.53%)traded approximately 6.8% lower, and the price of Cardano (ADA -6.14%) traded 5.5% lower.

So what

Markets are coming off an August jobs report last week that still suggests the labor market is strong. The US added 315,000 jobs in August, beating estimates. The US unemployment rate also rose in August and now stands at 3.7%, which is still a very healthy figure.

Image source: Getty Images.

The labor market is weird in the sense that while economists want to see a healthy labor market, the Fed almost needs to see some deterioration to stop rate hikes. This makes riskier assets such as cryptocurrencies less attractive to invest in.

The longer and more aggressively the Fed raises interest rates, the worse things will likely be for the likes of Bitcoin and Ethereum. The Fed is expected to raise its benchmark overnight rate by 0.50% or 0.75% at its September meeting, and I don’t think the recent jobs report has ruled out either option yet. The upcoming consumer price index (CPI) reading next week is likely to play a big role in the Fed’s decision.

In other news, next week Ethereum is expected to complete its long-awaited “merger” where the network will stop operating on a proof-of-work (PoW) mechanism and start operating on a proof-of-stake (PoS) mechanism .

PoW is when crypto miners use a lot of computing power to solve a cryptographic puzzle as quickly as possible, which then allows them to validate transactions, form new blocks, and mine tokens. In PoS, miners stake their existing tokens and enter what is essentially a lottery system for the opportunity to validate transactions and earn tokens. PoS is much more energy efficient than PoW.

Ethereum had rallied in anticipation of the “merger” yesterday, although today its price seems to be following the rest of the crypto market.

Today’s action appears to be tied to much of the same fearful sentiment the market has had all year. If the Fed continues to look hawkish, crypto tends to struggle, as do most stocks.

But the job market news wasn’t all bad. That was more in line with estimates than July’s numbers, and the small increase in unemployment may actually indicate that the Fed is making progress in its effort to bring down inflation – the hard part is if unemployment rises too high.

I also think Ethereum’s “merger” is going to be a real positive for the network, making it more energy efficient. Other upgrades along the line should also ease congestion on the network and reduce transaction fees. Although they may go further in the short term, I am bullish on Bitcoin, Ethereum and Cardano in the long term.