Bitcoin is currently facing macroeconomic pressures again following the release of the recent US employment report. This report showed signs that the labor market is stronger than expected, resulting in rising US Treasury yields and a decreased likelihood of a Federal Reserve rate cut in the short term.
The US economy added 130,000 jobs in January. This is nearly double the general market expectations. During the same period, the unemployment rate fell to 4.3%, demonstrating the robustness of the labor market.
Strong employment indicators are positive for the overall economy. However, they have complex effects on risk assets like Bitcoin.
Strong employment indicators... Delay in expectations for interest rate cuts
The market has been anticipating the possibility of interest rate cuts in the coming months amid concerns over recent growth slowdowns. However, a robust labor market is reducing the urgency for monetary easing.
Consequently, investors have readjusted their expectations regarding Fed policy.
The bond market reacted immediately. The yield on the U.S. 10-year Treasury rose by several basis points toward the 4.2% mark following the report release. The 2-year yield also rose, reflecting a reduced possibility of short-term rate cuts.
Rising interest rates make financial conditions stricter. This increases borrowing costs across the economy and raises the discount rate applied to risk asset valuations.
Rising yields... The burden on Bitcoin
Bitcoin is very sensitive to liquidity conditions. When U.S. Treasury yields rise, funds tend to move into safer, guaranteed return assets like government bonds.
Also, when interest rates rise, the value of the dollar often shows strength. When the dollar strengthens, global liquidity tightens, reducing the appeal of speculative assets.
This combination creates headwinds for the cryptocurrency market.
Bitcoin found temporary stability around $70,000 early this week. However, due to employment indicators, the risk of renewed volatility has increased. If there are no clear signals for the Fed to ease policy, market liquidity will remain constrained.
"For Bitcoin, this employment report is a headwind in the short term. Such a large figure reduces the possibility of a rate cut in March, and solidifies the Fed's policy rate freeze (3.50%~3.75%). The low-interest environment needed for a rebound in risk assets has moved further away. In the short term, the dollar is showing strength and Treasury yields will likely rise, so Bitcoin may fluctuate within a range for some time." - David Hernandez, cryptocurrency investment expert at 21Shares
Market structure, macro stress amplification
The recent sharp decline has shown how sensitive Bitcoin has become to macroeconomic changes. Large-scale ETF inflows, institutional hedging, and leverage positions can accelerate volatility when financial conditions tighten.
Just because the labor market has strengthened doesn't necessarily lead to a decline in Bitcoin's price. However, it is true that it weakens the key upward momentum factor of 'expectations for easing monetary policy.'
"In the short term, Bitcoin is showing a defensive posture. The key price range to watch is $65,000. However, if this strong employment report turns out to be a temporary phenomenon and not a signal of widespread economic recovery, the Fed may cut rates later this year. When that time comes, the value of Bitcoin's limited supply will become important again. Today's strong economic indicators may delay a rally, but they do not undermine the long-term upward outlook." Hernandez stated.
This U.S. employment report reaffirms a "higher and longer-lasting" interest rate environment.
From Bitcoin's perspective, it is not an immediately fatal situation. However, securing continuous upward momentum has become more challenging.
Unless liquidity is released or interest rates pull back, the macro environment is unlikely to be favorable for the cryptocurrency market for the time being.
