The crypto market has been struggling lately. While bitcoin is finding it difficult to recover, something seems to be shifting in the U.S. economy. The remarkably strong labor market of recent years is beginning to cool down.
That might sound distant, but the labor market has a surprisingly large influence on the price of bitcoin and other digital currencies. Because when the economy stumbles, investors become more cautious, and you feel that directly in the riskier corners of the market.
Why Does a Weak Labor Market Have Such a Big Impact? #
The U.S. labor market was one of the strongest in the world for years. The unemployment rate was consistently in the low threes, companies were hiring massively, and employees switched jobs effortlessly.
That situation is now turning. The unemployment rate is moving towards the mid-four percent range, and the monthly growth in new jobs is clearly declining. The number of open vacancies and voluntary resignations has also fallen.
These signals are seen globally as a benchmark for the health of the economy. Fewer new jobs and more unemployment often mean that consumers become more cautious. When people spend less, they automatically depress corporate profits and increase the likelihood of an economic slowdown.
How the Markets Are Reacting #
Large investment funds react quickly to such figures and then opt for less risky investments. Crypto, especially altcoins, falls into the category that is the first to be cut. In September of this year, bitcoin still dropped below $86,000 when a new labor market report was released.
However, this doesn’t only work negatively. A weaker labor market could lead the U.S. central bank to cut interest rates sooner. Lower interest rates make borrowing cheaper and often bring extra liquidity into the market.
Historically, bitcoin has often benefited from periods of falling interest rates or when expectations of future rate cuts increased. But that positive impact usually comes later, while the first reaction to poor job figures is often downward.
Brief Revival of Inflows to Crypto Exchanges #
Meanwhile, something remarkable is happening in the crypto market. A record amount of stablecoins, worth about $51 billion, has been sent to Binance. Bitcoin and ethereum are also being sent to exchanges in large quantities.
This indicates that traders are preparing for action: some want to sell on new dips, while others have stablecoins ready to jump in if they see a bottom.
The weakening labor market is currently playing a role in the downward pressure on bitcoin and altcoins. Only when it becomes clear whether the U.S. economy will have a soft or a hard landing can the crypto market truly choose a new direction.