Crypto Sees Slight Recovery Amid U.S. Economic Weakness and AI Concerns

Crypto Sees Slight Recovery Amid U.S. Economic Weakness and AI Concerns

Bitcoin and Ether have shown some gains recently, fueled by expectations of a more accommodative monetary policy in the U.S. However, weak economic data and uncertainties around artificial intelligence investments are casting shadows on the cryptocurrency market recovery.

Key Takeaways:

Low demand for leverage in Bitcoin (BTC) and Ether (ETH) contrasts with positive trends in the stock market, revealing fragile investor sentiment despite improving liquidity expectations.
Ongoing economic uncertainty, coupled with anticipated monetary easing, mitigates some risks for cryptocurrencies, potentially supporting a bullish trajectory.

Bitcoin and Ether surged on Wednesday, reaching their highest levels in two weeks as investors look ahead to a more expansionist monetary policy. Weak economic data has raised expectations for new stimulus measures, boosting demand for assets perceived as scarce.

Alongside this, the S&P 500 index and gold have also reacted positively, as market participants foresee greater liquidity flowing into the markets. However, with the total cryptocurrency market capitalization still sitting 29% below its all-time high of $4 trillion, traders of Bitcoin and Ether remain cautious about a possible market correction driven by broader economic uncertainties.

US 5-year Treasury bond vs. Total crypto cap, USD. Source: TradingView

Investor demand for scarce assets appreciated on Wednesday, evident from the rise in U.S. 5-year Treasury prices and gold prices nearing $4,240—up 3% in two weeks. Bitcoin maintained levels around $93,000, unchanged from two weeks prior, while Ether remains 37% off its all-time high of $4,956, prompting traders to reevaluate their outlook for the altcoin market.

Change in US non-farm payrolls. Source: Bloomberg / ADP Research

The U.S. labor market has shown indications of slowing down as of November, with private companies cutting 32,000 jobs, especially among small businesses. The ADP payroll report indicated that workers experienced a 0.1% pay decline from October, easing inflation concerns. Market participants now await the Federal Reserve’s interest rate decision on December 10, anticipating clearer guidance on future policies.

Impact of Additional Liquidity on Crypto

Recent statements from Fed policymakers indicate differing viewpoints, particularly due to the absence of official U.S. government data during the government funding shutdown that concluded on November 12. Some believe that rate cuts are essential to avoid deepening weaknesses in the labor market, while others caution that further reductions could exacerbate inflation, which remains above the Fed’s 2% target.

The increasing reliance on artificial intelligence (AI) investments by major corporations adds another layer of uncertainty. Jean Boivin, the head of the BlackRock Investment Institute, highlighted concerns about the potential for a bubble, stating, “There is so much talk about the possibilities… people are aware of the risks.” Reports from Yahoo Finance also noted BlackRock's warnings regarding the limitations of large-scale AI data center expansion.

Macy’s, a leading U.S. department store operator, reported ongoing challenges from cautious consumer spending and rising tariffs, predicting these factors will impact their performance in the final months of 2025. In a CNBC interview, CEO Tony Spring mentioned that Macy’s has had to implement “selective” price increases across various categories.

Annualized perpetual futures funding rate. Source: CoinGlass

Despite the positive sentiment, demand for bullish leveraged positions in Bitcoin and Ether is unusually low. In neutral market conditions, the annualized funding rate on perpetual contracts typically falls between 6% and 12% to cover capital costs. This lack of confidence is noteworthy, especially since the U.S. Russell 2000 Small Cap Index is just 2.3% below its all-time high.

The stock market is expected to directly benefit from expansionary monetary policies through lower capital expenses and government incentives related to AI and nuclear energy infrastructure. Without a significant shift in market sentiment, however, cryptocurrencies may continue to lag behind as job market conditions weaken and uncertainty escalates.

Despite the lackluster labor and consumer data, cryptocurrencies are not facing an immediate risk of collapse. The anticipated liquidity influx should help alleviate economic pressures and sustain interest in scarce assets. As long as monetary conditions remain accommodating, Bitcoin and Ether are more likely to recover gradually rather than face a drastic downturn.