Economic Wobbles Hit Bitcoin Hard

Macro Mania. Crypto assets are getting volatile as macro is once again dominating the narrative. Is the bottom in, or is the downside just getting started?

Bitcoin fell below the key $60k level that had supported price for the past two months this morning, making its way all the way down to $56.6k prior to the Federal Open Market Commission’s (FOMC’s) interest rate decision announcement.

Despite acknowledging that BTC may have further downside to come in the near future, some traders have gotten bullish on the possibility that much of the selling has subsided, believing that alts front-ran the dump and that their relative strength today will mark a bottom against BTC.

Near term price projections are always murky, but crypto bulls remain confident on the future trajectory of asset valuations, with Ark Invest CEO Cathie Wood raising her price target to $2.3M BTC and noting that the coin could trade as high as $3.8M should it receive increased institutional interest.

BTC has emerged as the best performing asset of the past decade; nonetheless, it has not existed during a true recessionary period. With signs that the global economy is rolling over, the crypto industry may soon undergo its most significant test to date…

Private sector employment numbers released last week indicates that the US economy lost 192k jobs during the third quarter of 2023. This figure represents a substantial 686k discrepancy compared to the monthly U.S. non-farm payroll data, spawning concern about the reliability of the data that market participants have used to reinforce their beliefs in a strong labor market.

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

Simultaneously, the ratio of job openings per unemployed person, along with quit rates, has dropped to near pre-COVID levels as the number of hires plunged to the lowest level since January 2018, suggesting that while there is demand to find and retain jobs, employers have little demand for labor. Similar data patterns have preceded a fall off in employment.

In commodities markets, oil prices dropped nearly 3% this morning after inventory levels exceeded analysts' expectations, signaling potential uncertainty in future economic growth and the commensurate demand for this key commodity input.

Moreover, troubling US manufacturing data compounds on economic concerns, revealing an increase in input costs alongside a decrease in new orders, a lethal combination of data that indicates stagflation and complicates the business outlook for producers.

While the FOMC decided to hold its rate target at 5.5%, the Committee included a bullish surprise for markets that allowed risk assets to bounce off the initial announcement, decreasing the amount of Treasury securities it will roll off the balance sheet per month from $60B to $25B beginning in June, providing a supportive bid for yields given the increased need to repurchase expiring securities.

The Federal Reserve maintains that it will hold rates at high levels until there are clear signs of progress towards their long term 2% inflation target, yet the economy is beginning to demonstrate weakness.

Once the cuts commence should deteriorating demand continue to weigh on prices, it is unclear if they will be able to incite a rally out of recession, considering their arrival has historically coincided with worsening economic conditions.