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Bitcoin (BTC) and Ethereum (ETH) lost momentum as higher-than-expected US employment data released on Friday dampened hopes for a Federal Reserve (Fed) interest rate cut in September. However, the post-report price drop of these two major cryptocurrencies presents a good opportunity, according to Singapore-based crypto trading firm QCP Capital.
Friday’s nonfarm payrolls data showed the U.S. economy added 272,000 jobs in May; this was much higher than the estimated 185,000 and the downwardly revised 165,000 in April. The unemployment rate rose to 4%, while average hourly earnings rose 0.4%, above the 0.3% increase expected. This is considered the sticky inflation component.
Markets downgraded the odds of a 25 basis point Fed rate cut in September from 85% to 60%, pushing risky assets including cryptocurrencies lower. While JPMorgan and Citi canceled their Fed rate cut forecasts for July, some observers brought interest rate hikes or additional liquidity tightening back to the agenda. According to CoinDesk data, Bitcoin, which seemed ready for a break above $72,000, fell nearly 3% to $68,400. Ether and the CoinDesk 20 index also followed Bitcoin.
QCP Capital noted that the Fed will have a hard time keeping interest rates high while other central banks are lowering borrowing costs. “The strong upside surprise in NFP (non-farm employment) at 182K versus 272K came on the back of higher unemployment rates (3.9% to 4.0%),” the firm said. “This could trigger a de-risking ahead of US inflation numbers and the FOMC.” “It was confusing enough for me,” he said.
QCP Capital stated that they believe the markets will start pricing in at least one Fed interest rate cut from here and added: “It will be difficult for the US to ignore this as the rest of the world continues to reduce interest rates.”
Last week the European Central Bank and the Bank of Canada cut interest rates, starting a G7 easing cycle of sorts. The number of central banks whose recent moves have been interest rate cuts has increased this year, according to MacroMicro.
Other central banks, including the Fed, may soon engage in reciprocal rate cuts (often called currency wars). This strategy could increase demand for alternative investments such as cryptocurrencies as part of managing rising public debt. “In this decline, we have seen bullish flows, including aggressive put sellers and call spread buyers, particularly on BTC,” QCP said.
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