Bitcoin Tanks On Weak Payroll Data: Experts Weigh In How A Fed Rate Cut Would Impact Crypto

BY Benzinga | ECONOMIC | 08/02/24 12:42 PM EDT

In a surprising turn of events, the latest U.S. employment data has significantly shifted market expectations for the Federal Reserve’s monetary policy, potentially influencing the cryptocurrency landscape.

What Happened: Fresh figures show weaker-than-anticipated payroll growth, prompting a dramatic increase in the probability of a substantial rate cut by September.

According to market data, the likelihood of a 50 basis point cut in September has surged from 22% to 71.5%, reflecting growing concerns about economic stability.

This shift has sparked intense debate among financial experts about the implications for various asset classes, including cryptocurrencies.

Economist Alex Kr?ger highlighted the nuanced impact of potential rate cuts, stating, “One cut ‘good’ (goldilocks), two cuts ‘bad’ (Fed’s hand forced).”

He noted that the poor payroll data has led to a decline in stocks, particularly small caps, due to recession fears.

Interestingly, Kr?ger observed that Bitcoin is currently trading in line with gold rather than following traditional risk assets.

Offering a more cautious perspective on the Federal Reserve’s likely approach, Ruslan Lienkha, chief of markets at YouHodler said that while the market anticipates a higher probability of a 50 basis point cut, it is too early to draw definitive conclusions about the Fed’s decision in September; more data is required.

He emphasized that the Fed’s decisions are based on multiple factors, not just employment data.

Lienkha also pointed out that inflation remains the primary factor influencing the Fed’s decisions.

<figure class="wp-block-image size-full">Benzinga future of digital assets conference</figure>

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Given recent inflation trends in Europe and their correlation with U.S. inflation, he anticipates a more gradual approach from U.S. authorities, possibly favoring a 25-basis-point cut over a more aggressive 50-basis-point reduction.

Regarding the potential impact on cryptocurrencies, particularly Bitcoin (CRYPTO: BTC), Lienkha outlined two possible scenarios. In a robust economic environment with low recession risk, he foresees capital inflows into equity markets, risk assets, and cryptocurrencies, potentially boosting Bitcoin’s price.

However, if economic data weakens, investors might seek to lock in current rates in the bond market, potentially leading to declines in both equity and cryptocurrency markets.

What’s Next: These evolving dynamics are set to be a focal point at Benzinga’s Future of Digital Assets event on Nov. 19.

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Image: Shutterstock

In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information. Read it carefully.

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