Bitcoin faces macroeconomic pressure again after the latest U.S. employment report indicates that the labor market is stronger than expected, resulting in higher U.S. government bond yields and reducing the likelihood that the Federal Reserve will cut interest rates in the short term.
The U.S. economy added 130,000 jobs in January, nearly double what analysts had expected. Meanwhile, the unemployment rate dropped to 4.3%, indicating that the labor market remains strong.
Although strong employment has positive effects on the overall economy, it complicates the outlook for risky assets like Bitcoin.
Strong employment data has delayed the forecast for a reduction in U.S. policy rates.
The market had expected that there would be a rate cut in the coming months due to concerns about economic slowdown. However, the strong labor market has reduced the incentive for easing monetary policy.
Therefore, investors have adjusted their expectations regarding the U.S. Federal Reserve's policy.
The bond market reacted immediately. The yield on 10-year U.S. government bonds surged to 4.2%, increasing several basis points after the report was released. The yield on two-year bonds also rose, indicating the possibility that short-term rate cuts may decrease.
Higher yields have tightened financial conditions, thus increasing the borrowing costs of the economy, and the discount rate used in assessing risky assets has also increased.
Why do higher yields pressure Bitcoin?
Bitcoin is very sensitive to liquidity conditions. When government bond yields rise, capital often flows to safer assets that can generate returns, such as government bonds.
At the same time, a stronger dollar often accompanies higher yields, which makes a stronger dollar reduce global liquidity and makes speculative assets less attractive.
The convergence of these factors creates obstacles for the crypto market.
Although Bitcoin stabilized near USD70,000 at the beginning of the week, employment data increased the risk of new volatility, and if there are no clear signs that the Federal Reserve will ease policy, liquidity will remain tight.
For Bitcoin, this report is a short-term obstacle. The outcome being this high reduces the likelihood that the Fed will cut rates in March and also supports the period during which the Federal Reserve keeps the interest rate at 3.50%-3.75%. The price catalyst for risky assets that require cheaper capital for continuous recovery must be pushed further away. The USD is expected to strengthen and yields will be adjusted upwards, both of which pressure BTC to move within a range in the near term, David Hernandez, a crypto investment expert from 21shares, told BeInCrypto.
Market structure increases macro pressure.
The recent drop illustrates how sensitive Bitcoin is to macro changes. Large ETF volume movements, institutional hedging, and leveraging can accelerate price movements when financial liquidity starts to tighten.
Although a strong labor market does not guarantee Bitcoin will drop, it reduces one of the key upside catalysts, which is the expectation of easing monetary policy.
In the short term, Bitcoin appears to be defensive. An important level to watch is 65,000 USD. However, if this strong report is only temporary and does not indicate that the economy is heating up again, the Fed may still cut rates later this year. By that time, the limited supply of Bitcoin will become important again. Today's strong data may cause a delay in recovery, but it does not eliminate the chances of a long-term upward trend, Hernandez said.
The latest U.S. employment report highlights a high-interest environment that will last longer.
For Bitcoin, although it does not have an immediate negative impact, it makes the chances of continuous upward movement more difficult.
As long as liquidity does not improve or yields do not decrease, the current macroeconomic outlook is tilted more towards caution than supporting the crypto market.
