Bitcoin is receiving new pressure from the macroeconomy after the latest U.S. job report shows a stronger labor market than expected. This caused bond yields to rise and made it less likely for quick interest rate cuts from the Federal Reserve.
The U.S. economy created 130,000 new jobs in January. That's almost double what experts had expected. At the same time, unemployment fell to 4.3%, indicating that the labor market is still strong.
Strong employment is good for the economy as a whole, but it makes it harder for riskier assets like Bitcoin.
Strong job figures push back expectations for interest rate cuts
Markets had expected possible interest rate cuts in the coming months due to concerns about weaker growth. But with a strong labor market, the need to cut rates quickly is decreasing.
Therefore, investors are now changing their expectations for the Federal Reserve's policy.
The bond market reacted immediately. The yield on U.S. 10-year government bonds rose to 4.2%, several points higher after the report. The two-year yield also increased, indicating that the market believes it will take time before the Fed cuts rates.
Higher interest rates make it harder to borrow money. Interest rates affect the entire economy and lower the valuation of risky assets.
Why higher yields press Bitcoin
Bitcoin is heavily influenced by market liquidity. When interest rates on government bonds rise, more choose to buy safe assets, like government bonds, instead of risky investments.
At the same time, the dollar often becomes stronger when interest rates rise. A stronger dollar reduces liquidity in the world and makes speculative assets less attractive.
This combination creates headwinds for the crypto market.
Bitcoin stabilized for a short while near 70,000 USD earlier this week. But the job figures make more volatile prices more likely. If the Fed does not give a clear signal about easing, liquidity will remain low.
"For Bitcoin, this report is a short-term resistance. Such strong figures reduce the chance of an interest rate cut in March and contribute to the Fed waiting at 3.50–3.75%. The easier access to cheap money, which risky assets need to recover, is postponed. We can expect a stronger dollar and higher interest rates, which press Bitcoin to stay within a certain range for the near future," says David Hernandez, Crypto Investment Specialist at 21shares, to BeInCrypto.
Market structure increases macroeconomic stress
The latest decline shows how sensitive Bitcoin is now to changes in the economy. Large ETF flows, institutional hedge strategies, and high loans can make market movements larger as liquidity decreases.
A stronger labor market does not mean Bitcoin has to fall. But it does weaken an important positive factor – namely expectations of easier monetary policy.
"In the short term, Bitcoin is defensive. An important level to watch is 65,000 USD. But if the report turns out to be temporary and not a sign that the economy is heating up again, the Fed may still cut rates later this year. When that happens, Bitcoin's limited supply will become important again. Strong figures today may delay a rise, but they do not affect the long-term positive case," says Hernandez.
The latest U.S. job report strengthens the image that interest rates will be high for a long time.
It is not directly a major setback for Bitcoin. But it makes it harder for the price to rise significantly.
If liquidity does not improve or interest rates do not fall, the macro situation looks set to be cautious rather than supportive for the crypto market.
