Crypto Markets Brace for Uncertainty as Mixed Economic Signals Spark Volatility

Crypto markets have been rangebound ever since the approval of Bitcoin ETFs arrived. A primary reason for the difficulty in ascending has been economic data points that have been dampening investor sentiments. In the same suit, a Bloomberg report highlighted that liquidity issues that been topping investors’ concerns lately, suggesting that the year ahead could be highly volatile. However, some positive indications for the market have kept sentiments mixed.

JP Morgan hints at a volatile year ahead

Bloomberg earlier reported that according to the annual survey of institutional traders by JP Morgan, volatile markets are expected to pose the biggest daily difficulty for a second year in a row. The most significant issue with market structure is access to liquidity, which is more important than data costs and regulatory changes.

US Jobs data suggests growth is well above expectations

According to Deloitte, the United States had a startling and unexpected surge in employment in January. Current data suggest that job growth is well above expectations. Furthermore, after suffering greatly during the pandemic, the majority of job growth from June to November 2023 occurred in the leisure and hospitality healthcare sectors. However, employment growth in January was minimal in the leisure and hospitality sectors and moderate in the healthcare sector. Instead, other economic sectors like manufacturing, retail, government, and professional services contributed the majority of the increase in jobs. Not surprisingly, considering the strength of the job market, earnings also increased quickly.

Fed Signals delay in rate cut, higher interest rates to weigh on crypto markets

The Federal Open Market Committee decided to maintain the target range for the federal funds rate at 5.25%–5.5 previously. The move came in line with larger market expectations as investors had priced in a near 96% chance of the Fed keeping the rates steady according to the CME FedWatch Tool. However, the disappointing follow-up of the rate decision was the Fed’s commentary that signaled that it might take some time before cutting rates. An expectation of sooner rate cuts had kept markets across the globe afloat, however, sentiments turned bearish as the Fed said that they would have to assess all data points before cutting rates.

The Federal Reserve’s rate decisions have long been a key indicator that investors use to assess investments. Lower interest rates frequently increase the allure of assets like crypto by devaluing government securities.

Wall Street still bullish for the stock market

According to a report by Yahoo Finance, various brokerages and financial firms have turned to a bullish narrative on the stock markets. This move comes despite concerns about a delay in rate cuts by the US Fed. However, the report by Yahoo Finance indicates that positive economic news should no longer be interpreted as “bad” simply because it may signal an impending increase in interest rates by the Federal Reserve. Rather, positive economic news signals that company activity is increasing, which is excellent for the stock market. And that’s typically good news for investors in the long run.

Global Layoffs indicate uncertainty in the labor market

Global layoffs that had started in 2023 have made their way into 2024 as well. A drag to the already heavy market sentiments, layoffs have impacted almost all segments from technology to financial markets.

Just yesterday. SNAP token creator, Snap Inc announced slashing jobs. Snap’s decision to reduce 10% its workforce was in tandem with other global players. Big Tech giants including Alphabet and Amazon had declared layoffs in January. Even the financial sector has been grappling with similar issues with Deutsche Bank announcing job cuts last week. Following the same suit, banking giant Citi had also announced that they are going to reduce around 20,000 of their workforce. The layoffs for both banks came after they had posted disappointing earnings for the quarter. Previously, investment banking behemoth BlackRock Inc. also announced that it would lay off 3% of its workers.

Even crypto and Web3 firms have braced for the impact of the same uncertainty. An example of this is Polygon Labs’ decision to cut roughly 19% of jobs. However, the company clarified that the reduction in workforce was not due to financial reasons but to enhance performance.

Where will the crypto market head post this?

Crypto markets usually track larger financial markets. Historically, a volatile and uncertain financial market is not good news for the virtual asset sphere. Crypto markets best perform in a stable market situation when investor appetite for riskier assets is high.

CoinGape previously reported that various institutions have been placing bets that prices for the OG-crypto will see an upscale in the future. This includes Bitwise’s forecast that in 2024, the price of Bitcoin will surpass $80,000. For the first half of 2024, at least, institutional investment in Bitcoin will continue to be the main focus, according to Coinbase.

However, if a larger global market downturn were to take place, some ripple effect of the same will be seen in crypto markets as well. This could either be in the form of lower trading volumes or a slow price ascending trend.

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