Bitcoin and Asian stocks fall as traders reduce expectations of a March rate cut by the Fed.

According to one observer, the payrolls on Friday will probably force the Fed to stay flexible in its future policy decisions.

🚀 Bitcoin Takes a Hit as Asian Stocks Struggle 📉

Bitcoin (BTC) registered moderate losses early Monday, with Asian stocks taking a bigger hit as Friday’s upbeat U.S. nonfarm payrolls (NFP) data dented expectations for early rate cuts by the Federal Reserve.

At 4:32 UTC, the leading cryptocurrency by market value changed hands at $43,600, representing a 0.8% drop on the day, according to Blocking.net data. Most Asian equity indices traded in the red, with Hong Kong’s Hang Seng trading 2% lower amid a regulatory crackdown on gaming.

💼 Payrolls Data and Rate Cut Expectations 📊

The NFP data released Friday showed the U.S. economy created 216,000 jobs in December, beating expectations for 170,000 and above November’s downwardly revised 173,000. The jobless rate held steady at 3.7%, while average hourly earnings increased 4.1% year-on-year against a consensus estimate of 3.9%.

Since the payrolls data, doubts have increased that the Fed will cut the Fed funds rate, the benchmark borrowing cost, as early as March. The CME Fed Watch tool shows traders now price a 60% chance of a rate cut in March, having fully baked in such a move in late December. The odds stood above 75% ahead of the payrolls report.

Traders in the swap market now foresee roughly five 25 basis point rate cuts this year instead of six or seven similar-sized rate cuts priced before the payrolls data, per FT.

📉 Treasury Yields Rise, Fed Rate Cut in Question 📊

The 10-year Treasury yield, the so-called risk-free rate, has risen by 15 basis points to 4.05% since Friday, also a sign of traders reassessing dovish Fed expectations or the possibility of the central bank delaying the rate cut. The benchmark yield fell by nearly 80 basis points to 3.86% in the final three months of 2023, offering a tailwind to risk assets, including bitcoin, thanks to expectations for aggressive Fed rate cuts and lesser-than-expected bond issuance by the U.S. Treasury.

“The most intriguing aspect was the rise in wage gains, which stood at +4.1% year-over-year (Y/Y). This figure significantly exceeds the current inflation rates. Historically, wage-price spirals tend to be persistent elements of inflation psychology, which will likely compel the Fed to maintain flexibility in its policy decisions going forward,” Greg Magadini, director of derivatives at Amberdata, said in the weekly newsletter.

🛡️ Future Outlook and Spot ETF Launch 📆

A continued rise in yields presents downside risk to risk assets, although anticipation of the spot ETF launch in the U.S. may cushion bitcoin against adverse moves in the bond market.

The U.S. Securities and Exchange Commission is widely expected to approve one or more spot ETFs by Jan. 10. According to some analysts, the move has been priced in over the past three months, and the cryptocurrency could see a “sell the fact” price drop following the approval.

📝 In-Depth Analysis and Commentary 💡

The recent market movements, influenced by the NFP data and rate cut expectations, have highlighted the fragility of both the stock market and the cryptocurrency market. While bitcoin experienced moderate losses, Asian stocks faced even stronger hits, particularly due to regulatory crackdowns.

The NFP data, which showed better-than-expected job numbers and wage gains exceeding inflation rates, has caused doubts regarding the timing of a Fed rate cut. Traders have adjusted their expectations and are now pricing in fewer rate cuts compared to before the release of the payrolls data.

The rise in Treasury yields is also playing a role in the reassessment of dovish Fed expectations. This is significant as it indicates a potential delay in the rate cut or a more cautious approach from the central bank.

Considering these factors, it is crucial to closely monitor the future outlook for risk assets, including bitcoin. While the rise in yields poses a downside risk, the forthcoming approval of spot ETFs by the SEC could provide some cushion and potentially mitigate adverse moves in the bond market.

💡 Analysis and Recommendations 💼

Based on the current market trends and sentiments, it is recommended to stay informed and observant of both macroeconomic indicators and regulatory developments. The approval of spot ETFs by the SEC could lead to short-term price drops, so it is important to be prepared for potential fluctuations in bitcoin’s value.

Furthermore, the rise in Treasury yields may pose additional challenges for risk assets. It is advisable to closely monitor the bond market and assess the impact on bitcoin. Engaging in thorough research and analyzing market trends will allow investors to make informed decisions regarding their investment strategies.

🔗 Relevant Links:

  1. Bitcoin Price | BTC Price Index and Live Chart – Blocking.net
  2. Bitcoin ETF Approval Could Trigger Crypto Market Rally – Options Data
  3. BTC Price Dives to $15K as Bitcoin Analysts Watch Support Levels

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Article originally published on Blocking.net.

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