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Cryptocurrency prices experienced a modest increase following the release of another weak nonfarm payroll report from the U.S.
Bitcoin rose to $56,500, while Ethereum jumped to $2,400 on Friday, Sept. 6. According to the latest report, the Bureau of Labor Statistics indicated that the economy added 142,000 jobs in August, falling short of the median estimate of 164,000. Additionally, the bureau revised the July figure from 114,000 to 86,000.
On Sept. 5, a report by ADP revealed that the private sector created only 99,000 jobs in August. The unemployment rate slipped to 4.2% from the previous 4.3%, while average hourly earnings increased by 3.8%. These figures suggest that the labor market is struggling, as companies remain cautious about the economy. The manufacturing sector is particularly impacted, with reports from the Institute of Supply Management and S&P Global indicating contraction in August. The BLS reported a loss of 24,000 jobs during the month.
Unemployment data finalized! JOLTS Job Openings: worst in 3 years. ADP Non-Farm Employment Change: worst in 3 years. Non-Farm Employment Change: 2nd worst in 3 years (last month was worse).
As a result, the NFP data suggest that the Federal Reserve may consider cutting interest rates at its meeting on Sept. 18. There is a possibility of a substantial rate cut of 0.50%, which explains the retreat in government bond yields. The 10-year yield fell to 3.75%, while the 30-year dropped to 3.9%.
Implication for Cryptocurrencies
In theory, cryptocurrencies and other risky assets tend to perform well when the Federal Reserve is cutting interest rates. For example, in 2018, the Fed raised rates from 1.25% in March to 2.50% in December, causing Bitcoin to fall by over 84% between its highest and lowest levels. Bitcoin then rebounded by over 350% in 2019 as the Fed slashed rates by 0.75%. A similar trend occurred in 2020 at the onset of the pandemic when the Fed cut rates to zero, leading Bitcoin to rise to a record high of $69,000 before plunging in 2022 as the bank hiked rates.
This trend can be attributed to investors having a higher risk appetite in low-interest-rate environments. If the Fed cuts rates, there is a possibility that some of the trillions of dollars in money market funds will shift to risk assets like stocks and crypto. However, there is a risk that Bitcoin and other cryptocurrencies could retreat since the rate cut may already be priced in by market participants.
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