Bitcoin and other cryptocurrencies pull back as the Fed rejects expectations of an immediate interest rate cut, while the upcoming U.S. jobs report may further shape market sentiment.
Bitcoin and other cryptocurrencies experienced a decline on Thursday, tracking the downward trend set by the stock market. This decrease came after the Federal Reserve dismissed the possibility of an immediate interest rate cut, diverging from market expectations. Furthermore, there is another significant macroeconomic event poised to unfold on Friday.
Within the past 24 hours, the price of Bitcoin has fallen by 2%, now standing at $42,150. Although it recently reached a two-week high of approximately $44,000, it failed to surpass the $48,000 mark that was achieved during January's trading fervor surrounding spot bitcoin exchange-traded funds (ETFs). Despite this setback, Bitcoin remains above the psychologically significant $40,000 level.
The cryptocurrency market's downturn on Thursday coincided with the stock market's worst performance thus far in 2024. Following Wednesday's monetary policy decision where the Fed opted to leave interest rates unchanged, Fed Chairman Jerome Powell expressed skepticism regarding the likelihood of an imminent rate cut. This contradicted the expectations of traders who had been anticipating a rate cut as early as March or May. Consequently, these expectations were tempered by Thursday.
Interest rate expectations have taken a toll on Bitcoin, mirroring the movement of the Dow Jones Industrial Average and the S&P 500. Cryptocurrencies, like other risk assets such as stocks, are affected by borrowing costs. When rates rise, investors have fewer reasons to invest in riskier options like equities or tokens.
After the recent message from Fed Chair Jerome Powell, interest rate bulls have faced a setback. Steve Clayton, head of equity funds at broker Hargreaves Lansdown, highlighted how the market has had to adjust its expectations for the timing and extent of rate cuts throughout 2024.
The upcoming U.S. jobs report for January, set to be released on Friday, could further shape the narrative. If the report reveals weakness in the labor market, it may reignite speculation of a Fed rate cut in either March or May. However, if indications show that the economy continues to perform strongly, it will only reinforce Powell's statement that rate cuts could be months away.
Bitcoin is not the only cryptocurrency feeling the impact. Ether, the second-largest crypto, experienced a 2% decline, reaching $2,270. Smaller tokens and altcoins followed suit, with Cardano dropping by 2% and Polygon sliding by 4%. Even memecoins like Dogecoin and Shiba Inu saw a modest loss of around 1% each.
It remains to be seen how interest rate expectations will continue to shape the crypto market and whether cryptocurrencies will maintain their sensitivity to borrowing costs in the future.
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