A new US labour market report promises a slowdown in rate cuts. What does this mean for Bitcoin?
Data in a new report on the state of the US labour market was more optimistic than forecast figures. This means that the Federal Reserve System (FRS) will, in theory, be slower to reduce the base lending rate, which determines the cost of financial loans and their availability. However, despite this, Grayscale analysts are in no hurry to write off the bullish scenario for the crypto market, meaning they expect a positive trend in the coin niche.
How does the US economy affect cryptocurrencies?
A strong US jobs report for September signalled a possible slowdown in the rate cut, which was lowered last month for the first time in four years.
The rate was lowered by 50 basis points, double the minimum change. In this way, bankers signalled a desire to reduce pressure on the economy while trying to avoid recession.
US Fed Chairman Jerome Powell
Fresh data is a positive factor for Bitcoin. experts believe. Still, investors are already showing interest in assets with higher risk. This was reported in an interview with Cointelegraph by Zach Pandl, head of research at Grayscale.
Discussions about Fed rate cuts and debates about the growing government deficit continue against a backdrop of steady economic growth. Overall, this should have a positive impact on investors’ appetite for risk.
The analyst means that due to the recent decrease in the base interest rate the yield of traditional financial instruments such as treasury bills has decreased. Accordingly, investors are interested in finding new categories of assets to invest in, which include cryptocurrencies.
At the same time, the development of other markets speaks of positivity and positive expectations of their participants. This means that holders of capital are less and less afraid of recession and invest it in different instruments - including coins.
Inflation rate in the USA
Grayscale’s research department expects Bitcoin to benefit from a risk-friendly environment. As Pandl notes, the U.S. economy created about 254,000 jobs in September, well above economists’ expectations of 140,000. On the back of this data, Bitcoin’s price rose to a local high of $63,970 today.
Changes in Bitcoin’s value over the past year
As we have already noted, on September 18, the Federal Reserve lowered the benchmark lending rate by 0.5 percent. This followed a slowdown in inflation and weak economic data in August. Back then, there was less than 160,000 job growth and an annual inflation rate below 3 per cent, meaning conditions were not great.
Prices in the futures market are now pointing to expectations of a rate cut of no more than a quarter of a percent at the next Fed meeting on November 7. The current target rate is at around 4.75 per cent.
The likelihood of a rate cut at the Fed’s next meeting
An optimistic jobs report and expectations of a rate cut are helping to shape the idea of Bitcoin rallying in the fourth quarter of this year. Another possible growth factor is the continued decline in the amount of BTC on centralised exchanges.
According to analytics platform CryptoQuant, centralised exchanges currently hold more than 2.8 million BTC, which is the lowest since November 2018. Which means right now, cryptocurrency holders are not particularly eager to part with their own coins and are waiting for the bullrun to continue.
In addition to market fluctuations, opinion leaders within the crypto industry are facing another challenge – ensuring Bitcoin is decentralised. Moreover, this problem is literally a matter of national importance. This opinion was voiced by Rajiv Kemani, co-founder and CEO of mining chip maker Auradine.
The executive explained that third-party software that is updated and changed over time could theoretically be used to sabotage the power grid or conduct a 51 per cent attack on the Bitcoin network.
Khemani described a possible situation where malicious code embedded in firmware is able to disable mining devices in a certain region. This is able to cause a decrease in hash rate and complexity.
Bitcoin mining complexity is a metric that defines the labour intensity of creating a block in a given blockchain. The challenge of complexity is to ensure that the average block mining time is ten minutes. Accordingly, when miners start to deal with blocks faster as the influx of miners increases, the complexity increases - and vice versa.
Bitcoin network hash rate
The expert emphasised the need for caution when evaluating hardware and software supplied by foreign companies. Here is his rejoinder on the subject.
Any time you have hardware, software and firmware from a foreign company that is connected to your energy infrastructure, you need to make sure that you conduct due diligence and risk mitigation.
Such a scenario seems unlikely - at least for large companies. After all, their sales and market position depend directly on their reputation, and tampering with their customers will destroy it.
Cryptocurrency miner
Another attack vector is the risk associated with the supply chain. Still, if highly specialised mining equipment is produced mainly in one jurisdiction, that country can restrict the export of these products at any time, leaving miners without access to critical technology.
There aren’t many ways to spy on or steal coins through mining equipment.
Hemani concluded that the U.S. should have a policy that encourages domestic production of ASIC mining equipment. That said, no country should control the majority of hashrate or equipment supply.
As a result, analysts believe that the base interest rate cut in September has already done its job. That is, investors have started looking for more profitable instruments and have turned their attention to cryptocurrencies. Against the background of growth of other markets, they do not seem so dangerous - at least if we talk about the largest representatives of the niche.
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