Crypto Markets On The Ropes As Traders Brace For US NFP Data

Key Points

• Crypto markets were crushed on Thursday, shedding over $150 million in value as US bond yields rallied.
• Bitcoin dropped nearly 8.0% to fresh more than two-month lows in the $36,000s.
• Traders are now bracing for the upcoming release of the April US jobs report.

Thursday’s Market Rout

Traders and strategists skeptical of Wednesday’s post-“not as hawkish as feared” Fed policy announcement rally across cryptocurrency markets and, more broadly, global risk assets, saw their cynicism pay off on Thursday.

Bond markets, seemingly taking the view that the latest Fed policy announcement raises the risk of an ultimately higher so-called “terminal” interest rate, rallied on Thursday, with the 10-year breaching the 3.0% for the first time since December 2018.

Risk assets and crypto markets quickly took note of the hawkish signal being sent by bond markets.

The big tech-dense Nasdaq 100 index led a global decline in equities, clocking a historic more than 5.0% intra-day drop. Cryptocurrencies, given their high correlation to US tech, were battered as a result.

According to TradingView, the total cryptocurrency market capitalization cratered from weekly highs above $1.8 trillion on Wednesday to as low as $1.619 trillion, before ending Thursday around $1.66 trillion. That meant a more than 7.0% on the day drop, marking the worst single day for cryptocurrency markets since 21 January.

Bitcoin fell nearly 8.0% on Thursday, reversing sharply back from earlier weekly highs around $40,000 per token and just above its 21-Day Moving Average in the $39,000s to hit fresh more than two-month lows in the mid-$36,000s.

Ethereum fell a slightly more modest 6.5% but still hit fresh lows since mid-March under the $2,700 per token mark.

According to data on crypto derivatives and data analytics website Coinglass, Bitcoin long positions worth $164.763M were liquidated on Thursday, the most in more than three months. Ethereum saw a more modest $60.33M in long positions liquidated, the most since 26 April.

Markets Brace For US Jobs Data

Conditions have calmed on Friday. The total cryptocurrency market cap has stabilized around $1.65 trillion, about $150 million below earlier weekly highs, with BTC/USD and ETH/USD changing hands in the mid-$36,000s and just above $2,700 respectively.

Trade has entered its typical pre-US non-farm payroll (NFP) data release lull. Traders typically refrain from placing large, market-moving bets ahead of important economic events that could trigger two-way volatility.

The US Bureau of Labour Statistics releases the April labor market report at 1230GMT.

According to a Reuters survey of economists, the median expectation is that US non-farm payrolls rose at a robust pace in April of just under 400,000. The median economist forecast for the unemployment rate is for a drop to 3.5%, while the YoY pace of Average Hourly Earnings growth is seen moderating slightly to 5.5% from 5.6% in March.

All in all, the data should show that the US labor market remains very tight, supporting the idea that labor demand, as the March JOLTs survey earlier in the week demonstrated, remains very robust, with the major constraint right now on jobs gains being a shortage of workers.

The data will be viewed in the context of how it impacts inflation risks in the US economy and, ultimately, the risk of a higher Fed “terminal” interest rate. Wage growth will likely be the most important metric to look at in this context.

Anything that pushes further upside in US yield would likely cause further pain for crypto markets. Higher yields raise the “opportunity cost” of holding non-yielding assets like cryptocurrencies.