Good Bad News for Crypto

Back already? Risk assets pumped this morning following weaker-than-expected employment with Bitcoin up nearly 5%, a surge directly attributable to the increased probability of steeper and sooner interest rate cuts. Why is bad news good for your bags?

The United States Bureau of Labor Statistics released employment data for the month of April at 8:30 AM EST this morning (the moment this morning’s BTC rally was incited), showing that non-farm payrolls increased by 175k as the unemployment rate ticked up to 3.9%.

Non-farm payrolls came in below the consensus expectations for 243k jobs, the series’s worst month since October 2023, and the unemployment rate is now back at 2024 highs despite ticking down slightly after March’s massive employment beat.

On Wednesday, Federal Reserve Chair Jerome Powell specifically stated that a weakening labor market could spur the interest rate cuts market participants have eagerly awaited; today’s weakening employment data created massive increases in the odds for a cut.

Yields on US Treasuries, which have plummeted throughout the month of May, continued on their trajectory lower as the imminence of rate cuts received further confirmation meanwhile market participants are now pricing in a base case of two interest cuts in 2024.

Policymakers, prolific financial thinkers, and the media apparatus have buttered you up to believe that an economy in decline is somehow a bullish catalyst because it will incite rate cuts, however, this is far from the truth. History demonstrates time-and-time again that rate cuts typically coincide with the deepest points of recession, demonstrating that interest rate manipulation is only one of numerous variables that impact the economy.

Fundamentally, bond yields are a reflection of future growth and inflation expectations. Their move lower suggests that there will be no reinflation and that growth is headed lower.

Interest rates below the “neutral rate” at which we achieve stable employment and inflation can service an economic boon, but this neutral rate falls sharply into recessions, meaning that rate cuts alone may be inadequate to offset economic decline.

The Fed claims to be entirely “data dependent,” but this leaves them focused on lagging data metrics and staring in the rearview mirror; by the time they run over the pedestrian ahead, it will be too late.

While near-zero interest rates are certainly nice for capitalized borrowers, they are meaningless when the availability of credit is slim and the quality of borrowers is declining alongside the value of their assets.