Janice R. Andrews
As Bitcoin continues to fall, the August Nonfarm Payrolls Report due out tomorrow could have a big impact on the Federal Reserve’s next interest rate decision. The report is one of the last pieces of information before the Fed’s rate-setting meeting at the end of the month. It could either make people more or less likely to expect a more bold rate cut.
Economists think that the U.S. economy added about 160,000 jobs in August, which is more than the 114,000 jobs that were added in July, which was less than predicted. It is expected that the jobless rate will go down a little, from 4.3% in July to 4.2%. If the jobs report is good or even better than expected, the Federal Reserve might only lower interest rates by 25 basis points. If the report is bad, the central bank might think about a bigger 50 basis point cut.
Most of the economic news that came out this week was generally weak. The ISM Manufacturing PMI, the Fed’s Beige Book, and ADP’s August jobs report all show that the economy is slowing down. This makes it more likely that rates will be cut even more. The chance of a 50 basis point cut has gone up from 34% a week ago to 44% now, according to CME’s FedWatch tool.
What Bitcoin Didn’t Do in Response to Fed Rate Cuts
Fed easing trends have been good for Bitcoin in the past. The cryptocurrency came into being during the global financial crisis of 2008, at the same time that the Federal Reserve slashed interest rates to zero and pumped hundreds of billions of dollars into the economy. This was a great place for Bitcoin to grow because its decentralised nature appealed to people who don’t trust state banks to stay out of their businesses.
In the same way, the Fed’s monetary strategy helped Bitcoin’s rapid rise during the COVID-19 pandemic. When the central bank cut interest rates again and pumped money into the economy, Bitcoin went from being unknown to being popular, and its market cap grew to over $1 trillion.
However, the current run of possible rate cuts is not getting people as excited. Bitcoin hasn’t changed much in response to signs that the Federal Reserve might lower interest rates, so it has kept going down. Even though there have been a lot of signs that rate cuts might be coming, Bitcoin prices have not been able to get out of their slump.
The price of Bitcoin has dropped 5% in the last month and is now $56,300. It is also more than 23% below its all-time high of over $73,500, which was hit six months ago.
Investors are still being cautious
Even though more extreme rate cuts are possible, investors don’t seem willing to bet that Bitcoin will go up in value. This week, Quinn Thompson, CIO of the hedge fund Lekker Capital, talked about how the weak economic figures affected the market. “There are more people who believe the Fed will cut rates by 50 basis points in September,” he said. “But you’ve been burned too badly for the past six months to press the buy button.”
For now, Bitcoin is likely to keep having problems until the Federal Reserve’s monetary strategy and the economy as a whole become more clear. Tomorrow’s jobs report will be the centre of attention; it could mean the difference between Bitcoin finding new support and continuing to float.
