The US labour market is showing signs of weakness — and that’s great news for cryptocurrencies.
That’s because the Federal Reserve could soon begin cutting interest rates, unleashing a torrent of liquidity into the market that would benefit assets like Bitcoin.
Fed Chair Jay Powell is due to testify today on monetary policy in front of the Senate Banking Committee.
Market watchers will look for any hints of rate cuts.
The Fed
Bitcoin investors should understand “how irresponsible and unhinged the macro situation is about to get” Felix Jauvin, host of macro podcast On The Margin, posted on X.
That’s because a weaker than expected US employment report released Friday signalled the US central bank to cut interest rates in order to avert a recession.
“With a Fed anxious to ease, the latest data gives them some cover to do so,” Danny Dayan, former chief investment officer at hedge fund DWD Partners, posted on X.
Most market participants — 75% — expect the Fed to cut rates twice this year, according to CME FedWatch data.
The problem, Dayan wrote, is that inflation is likely to show up again when the Fed cuts rates.
In other words, the government is spurring inflation by supporting the jobs market through its growing deficit, but the Fed’s likely response — cutting rates — will also cause inflation to rise.
“Cutting in these conditions may feel wonderful now and support risk assets further, but I think we are setting ourselves up for very bad outcomes down the road,” Dayan said.
”The only obvious trade for me here is … inflation,” he wrote, before adding that after the jobs report: “I bought Bitcoin.”
The jobs report
The US government is responsible for a growing portion of the new jobs added.
According to Noelle Acheson, former head of market insights for Genesis Global Trading, the government has only created more jobs on three occasions: during World War Two, during the Vietnam War, and in the year 2000, when the dot-com bubble collapsed.
”The increase in government jobs not only distorts the employment numbers — it also continues to feed the budget deficit,” Acheson wrote in her newsletter, “Crypto Is Macro Now.”
The ballooning budget deficit could push the Fed to issue more dollars to buy more debt, thus fuelling inflation, Acheson has argued.
Crypto market movers
Bitcoin is flat over the last 24 hours at $57,634.
Ethereum is up 1.2% to $3,096.
What we’re reading
France’s shock election wins will upend crypto tax cuts, industry fears — DL News
Bitcoin Nosedives As German Government Moves Over $850M In BTC — Milk Road
BTC on Exchanges at More Than Five-Year Low Amid German Government Selling — Unchained
‘Crypto Funds See $441M Inflows As Mt. Gox Bitcoin Pressure Eases — Milk Road
A Solana project wants to tokenise oil rights — will investors bite? — DL News
Tom Carreras is a markets correspondent at DL News. Got a tip about Bitcoin and markets? Reach out at tcarreras@dlnews.com
