Non-farm data is positive, why did Bitcoin and Ethereum plummet?
In traditional financial markets, non-farm payrolls are often viewed as a barometer of economic health. A strong non-farm payrolls (NFP) number usually means good economic conditions, increased corporate hiring, and improved consumer spending and confidence. However, despite the recent strong U.S. non-farm payrolls data, which showed a healthy job market, the cryptocurrency market reacted in the opposite way: Bitcoin and Ethereum fell sharply after the data was released. This phenomenon seems contradictory, but there are actually multiple factors at work behind it.
Market interpretation of favorable economic data
Market expectations and linkage with risky assets: Although the positive non-farm data indicates that the economy is in good condition, for risky assets such as Bitcoin and Ethereum, such data may also mean that the Federal Reserve (FED) will maintain or even further raise interest rates to curb potential inflation risks. Cryptocurrency, as a high-risk asset, is particularly sensitive to interest rate hikes. Rising interest rates usually cause investors to turn to traditional financial instruments with higher yields, such as bonds, thereby reducing demand for high-risk assets such as cryptocurrencies.
Strong non-farm data may strengthen the dollar: When U.S. economic data is strong, the dollar usually strengthens. The strength of the dollar tends to put pressure on the prices of dollar-denominated assets such as Bitcoin and Ethereum. Investors tend to withdraw funds from high-risk assets and turn to relatively safe currencies and government bonds to seek value preservation.
Investor Sentiment and Market Technicals
Rapid shifts in market sentiment: Before the release of non-farm payrolls, the market expects strong data, which may lead investors to be overly optimistic and make early arrangements. However, after the data is released, investors begin to reassess the economic outlook, especially the potential response of the Federal Reserve. This shift in sentiment often triggers a rapid market correction, especially in a highly speculative environment such as the cryptocurrency market.
Technical triggers: Technical analysis also shows that after the release of non-agricultural data, Bitcoin and Ethereum encountered strong resistance at key technical levels, triggering a large number of automatic sell orders. The triggering of stop-loss orders further exacerbated the decline and formed a rapid decline. For Ethereum, it has recently encountered resistance around $2,550 and has been unable to break through, triggering more selling pressure.
Market structure and the impact of leverage trading
Leveraged liquidations and market volatility: The cryptocurrency market is known for high volatility and high leverage trading. Changes in market sentiment brought about by positive economic data may lead to the liquidation of a large number of leveraged positions. Forced liquidations (forced liquidations) of leveraged traders usually trigger larger price fluctuations, further exacerbating the market's downward trend.
Exchange liquidity and the role of market makers: During periods of high volatility, liquidity on exchanges can dry up quickly and market makers become cautious in their activities. Liquidity depletion can lead to larger price jumps and fluctuations, which can trigger a chain reaction. This is particularly common in the cryptocurrency market due to the lack of market stabilization mechanisms and mature hedging tools.
Summary and Outlook
Although the strength of non-farm payrolls is generally seen as a positive signal for the economy, the logic behind it is more complicated for the cryptocurrency market. The strong non-farm payrolls data triggered market concerns about the Fed's tightening policy, a stronger dollar, lower risk appetite, and multiple factors such as technical aspects and market structure, which led to the decline of Bitcoin and Ethereum.
For investors, understanding the complex relationship between these factors will help make more rational decisions in similar market events in the future. The high volatility and uncertainty of the cryptocurrency market require investors to act cautiously while paying attention to changes in technical indicators and the macroeconomic environment.
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