The cryptocurrency market has fallen again: Can non-farm payrolls, CPI, and the Federal Reserve's interest rate cuts bring a turnaround?

Author: 1912212.eth, Foresight News

The cryptocurrency market is quite dull. BTC has once again fallen from around $58,000 today, dropping to a low of $55,606. ETH has also decreased from around $2,500 to about $2,300. Altcoins have also experienced a broad decline due to the overall market performance. According to coinglass data, $196 million was liquidated across the network in the past 24 hours, with $172 million in long positions being liquidated.

The performance of the BTC spot ETF is also not optimistic. Since a significant net outflow of $127 million on August 27, it has remained in a state of net outflow.

If you bought altcoins from October last year until now and haven't sold, you likely have no profits left. If you bought altcoins after March this year and are still holding, you may be facing significant losses. The cryptocurrency market continues to decline due to ongoing profit-taking and a lack of hot narratives. Ultimately, market liquidity remains very scarce.

With insufficient funds in the market, external funds are stepping in. Although it is easy for cryptocurrency investors to focus too much on macro factors and miss the bigger picture, it must be acknowledged that macroeconomic factors are still greatly influencing the volatility of the cryptocurrency market. A primary example is that before and after the release of non-farm payroll data, CPI data, and Federal Reserve data, BTC and the entire market often experience significant fluctuations.

In the current context of continuous market decline, will the release of the aforementioned macro data bring a turnaround?

Non-Farm Payroll Data

On September 6, the last non-farm report before this month's Federal Reserve decision will be released. Against the backdrop of a confirmed downward trend in inflation, this employment report will undoubtedly be one of the most important data points of the week.

The U.S. non-farm payroll for July, released on August 2, was 114,000, lower than the expected 175,000. This data release triggered widespread market concerns, with some opinions even suggesting that there is a risk of recession in the U.S. economy, leading to a week-long global market decline, with cryptocurrencies, as risk assets, being the most negatively impacted.

BTC fell from around $65,000, declining for four consecutive days, even briefly dropping below $50,000, reaching a low of $49,000, which significantly spread panic in the market.

Recently, Ipek Ozkardeskaya, an analyst at Swissquote Bank, stated in a report that if the U.S. non-farm payroll data released on Friday exceeds expectations, the dollar may rise, as this would weaken the expectation of the Federal Reserve cutting rates by at least 50 basis points this year.

According to economist forecasts compiled by Bloomberg, the number of jobs added in August is expected to be between 100,000 and 208,000, with a median of 163,000, and the unemployment rate is expected to gradually decline to 4.2%. Morgan Stanley predicts that the unemployment rate in August will drop to 4.2%, with new non-farm payrolls expected to rise to 185,000.

As economic growth becomes the sole focus of the market, this data could influence market sentiment.

CPI Price Index

On September 11, another important data point will be released: the CPI price index.

The U.S. CPI annual rate for July, released on August 14, was 2.9%, marking a decline for the fourth consecutive month and returning to the "2" range for the first time since March 2021, with market expectations at 3%. The U.S. core CPI annual rate for July was 3.2%, also declining for the fourth consecutive month, the lowest level since April 2021, in line with market expectations.

This data falling within the Federal Reserve's official target range further supports expectations for a rate cut in September.

After this data was released, BTC quickly surged to $61,800, then fell back to just above $61,000. After briefly dropping to around $57,700, it strongly rebounded to above $65,000 in the following week.

Although significant progress has been made in combating inflation over the past two to three years, it is still too early to rule out risks. First, as major central banks around the world gradually enter a loosening cycle, the growth rate of money supply is rising again, increasing price risks. Second, there are still upward risks for sticky inflation components. Third, geopolitical shocks may push up commodity prices.

Federal Reserve Decision

On September 19, the Federal Reserve will officially announce its interest rate decision.

On August 23, Powell stated at the Jackson Hole Global Central Bank Conference that "the time has come," sending the clearest signal yet for a rate cut in September, marking a key turning point in the Federal Reserve's two-year battle against inflation. Since July 2023, the Federal Reserve has kept the benchmark interest rate between 5.25% and 5.5%, the highest level in over 20 years.

This decision will be influenced by the two data points mentioned earlier, with the market generally estimating a slightly higher probability of a 25 basis point cut, while the probability of a 50 basis point cut is relatively low.

Bond traders expect about 100 basis points of cuts this year, meaning that there could be announcements of rate cuts at each Federal Reserve policy meeting from now until December, including a significant cut of 50 basis points.

It is worth noting that a rate cut announced by the Federal Reserve may not immediately trigger a large-scale rally in the cryptocurrency market. When the Federal Reserve began its rate cut cycle in August 2019, BTC fell 4.89% in the monthly chart and continued to drop 13.54% the following month, with BTC falling from $12,000 to around $7,700, only showing an upward trend after the March 2020 event.

Summary

The cryptocurrency market remains in a dull phase, and the macro variables in the coming weeks may have a significant impact on market liquidity. The recovery of market liquidity will still take time, but that moment may not be far off.