Asian Stocks and Bitcoin Slump as March Fed Rate Cut Bets Reduce

• Bitcoin Experiences Mild Setback Amidst Rising Asian Market Tensions
• Impact of NFP Data on Market Trends
• Assessing the Federal Reserve's Next Steps
• Rate Cuts and Bond Markets
• The U.S. Treasury and Its Impact on Bitcoin
• Outlook for Bitcoin Amid These Market Changes

Bitcoin Experiences Mild Setback Amidst Rising Asian Market Tensions

Bitcoin$42,260 -0.64%, the leading cryptocurrency based on market value, recorded a slight decline on the morning of Monday. BTC witnessed a drop of 0.8%, trading at around $43,600 as of 4:32 UTC, according to the source data. This occurs in the backdrop of a more significant slump in Asian stocks, primarily stimulated by the optimistic U.S. nonfarm payrolls (NFP) data released on Friday, which has shaken predictions for early Federal Reserve rate cuts.

Impact of NFP Data on Market Trends

The NFP data, made public on Friday, indicated the creation of an impressive 216,000 jobs in December in the American economy. This result surpasses the 170,000 job creation expectation and shows a significant increase from November's revised figure of 173,000. The unemployment rate remained stable at 3.7%, while average hourly earnings witnessed a 4.1% increase year-on-year, above the consensus estimate of 3.9%.

Assessing the Federal Reserve's Next Steps

Since the release of the payrolls data, uncertainty has risen concerning the Fed's plans to cut the Fed funds rate, the crucial borrowing cost, as soon as March. Based on the CME Fed Watch tool, traders now project a 60% likelihood of a rate cut in March, a decline from late December when the event was anticipated fully. The chances were over 75% prior to the payrolls report.

Rate Cuts and Bond Markets

Traders in the swap market are predicting approximately five 25 basis point rate cuts this year, down from the six or seven similar-sized rate cuts anticipated before the payrolls data release. The 10-year Treasury yield, also known as the risk-free rate, has increased by 15 basis points to 4.05% since Friday. This suggests traders are reconsidering dovish Fed expectations or the central bank possibly postponing the rate cut.

The U.S. Treasury and Its Impact on Bitcoin

The benchmark yield saw a substantial decline of nearly 80 basis points to 3.86% in the last quarter of 2023. This created a favorable environment for risk assets, including bitcoin, due to the predicted aggressive Fed rate cuts and lower-than-expected bond issuance by the U.S. Treasury. Greg Magadini, the director of derivatives at Amberdata, commented on the rise in wage gains in the weekly newsletter, pointing out the importance of this aspect which stood at +4.1% year-over-year. He indicated that this figure significantly surpasses current inflation rates and could induce the Fed to retain flexibility in its policy decisions.

Outlook for Bitcoin Amid These Market Changes

While an ongoing increase in yields may pose a downside risk to risk assets, the anticipated launch of the spot ETF in the U.S. could help soften potential negative impacts on bitcoin from the bond market. It is widely expected that the U.S. Securities and Exchange Commission will green-light one or more spot ETFs by January 10. Some analysts believe this move has been factored into the price over the last three months, which could potentially lead to a sell the fact price drop for the cryptocurrency following the approval.

Edited by Jonathan Stoker