Bankless: Macroeconomic factors dominate the narrative, economic turmoil hits Bitcoin hard

Author: Jack Inabinet Source: Bankless Translation: Shan Ouba, Golden Finance

The crypto asset market is becoming volatile, and macro factors are once again dominating the market narrative. Has Bitcoin confirmed that it has bottomed, or has the downward trend just begun?

Early this morning, Bitcoin fell below the key support level of $60,000 that has supported its price for the past two months, falling all the way to $56,600 before the Federal Reserve's Federal Open Market Committee (FOMC) interest rate decision was announced.

While some traders acknowledge that Bitcoin may fall further in the near term, they are also optimistic about the possibility that the sell-off may have basically ended. They believe that altcoins have led the decline and that their relatively strong performance today will mark the arrival of a bottom relative to Bitcoin.

Short-term price predictions are always murky, but crypto bulls remain confident about the future trajectory of asset valuations. Ark Invest CEO Cathie Wood raised her Bitcoin price target to $2.3 million, noting that if institutional investor interest increases, the price of Bitcoin could go as high as $3.8 million.

Bitcoin has been one of the best performing assets of the past decade; however, it has never experienced a true recession. As the global economy shows signs of recession, the crypto industry may be about to face its toughest test yet...

Hiring and resignations have both plummeted, the job market is gradually freezing, and salary cuts may be imminent

Private sector employment data released last week showed that the US economy shed 192,000 jobs in the third quarter of 2023. This figure was 686,000 higher than the monthly data on US non-farm payrolls, raising concerns among market participants about the reliability of the data used to reinforce their confidence in a strong labor market.

The Job Openings and Labor Turnover Survey (JOLTS) showed that job openings in March fell to the lowest level since February 2021, with the largest drop in job openings in the construction industry on record!

Meanwhile, the ratio of job openings per unemployed person and the quit rate have fallen to near pre-pandemic levels as hiring fell to the lowest level since January 2018, suggesting that while there is demand to find and keep jobs, employer demand for labor is low. Similar data patterns had previously foreshadowed a decline in employment.

In commodity markets, oil prices plunged nearly 3% this morning as inventory levels exceeded analysts' expectations. This suggests that there may be uncertainty about future economic growth, which in turn affects the corresponding demand for this key commodity input.

In addition, economic concerns were exacerbated by disturbing US manufacturing data, which showed rising input costs while new orders fell. This combination of data points to stagflation and complicates the business outlook for producers.

Although the Fed decided to keep the target interest rate at 5.5%, the committee delivered a positive surprise to the market, allowing risk assets to rebound from the initial statement. The Fed announced it would reduce the amount of Treasury securities on its balance sheet from $60 billion to $25 billion per month starting in June, a move that will support yields given the increased need to repurchase maturing securities.

The Fed has insisted that interest rates remain high until there are clear signs of progress toward its long-term 2% inflation goal. However, the economy is beginning to show signs of weakness.

If deteriorating demand continues to weigh on prices, it is unclear whether the Fed will be able to stimulate the economy out of a recession once rate cuts begin, as historically rate cuts have often been accompanied by worsening economic conditions.