Bitcoin’s (BTC) inability to sustain its bullish momentum on Thursday has sparked concerns about its potential to withstand economic pressures. As investors fled to safer assets, such as government bonds and gold, the cryptocurrency’s value dropped below $110,000. This shift in investor sentiment was largely driven by the release of the US labor market data, which highlighted the growing fears of a recession.
The increasing demand for government bonds and gold is a clear indication of the market’s risk aversion. The returns on 2-year US Treasury bonds have decreased to 3.60%, their lowest value in four months, signaling investors’ willingness to accept lower returns in exchange for security. This trend is further reinforced by the ADP report, which showed a significant decline in job additions in August, and the Institute for Supply Management’s (ISM) report, which highlighted a decrease in overall employment.
Impact of Interest Rates on Bitcoin
The upcoming meeting of the Federal Open Market Committee (FOMC) on September 16-17 is expected to result in an interest rate cut of 0.25%, reducing the benchmark to 4.25%. However, investors remain skeptical about the Federal Reserve’s ability to maintain such loosening for an extended period. The CME FedWatch Tool shows that the probability of interest rates being at 3.75% or lower by January 2026 has decreased from 72% to 65% over the past month.
The correlation between Bitcoin and tech stocks remains high, with a 60-day correlation of 72% with the Nasdaq index. This suggests that the two assets are closely tied, and any changes in the stock market are likely to impact Bitcoin’s value. However, some analysts believe that the potential addition of MicroStrategy (MSTR) to the S&P 500 could be a catalyst for change, as it would force index funds and exchange-traded funds (ETFs) to buy MSTR shares, potentially boosting Bitcoin’s legitimacy.
Bitcoin’s Relationship with Traditional Assets
Despite the growing demand for short-term Treasury bonds, tax imbalances could undermine confidence in the US dollar, creating a scenario where Bitcoin could benefit. According to analysts at Bank of America, the US dollar is expected to weaken against other currencies by 2026, citing trade friction and the erosion of institutional credibility.
In the short term, Bitcoin’s risk aversion may lead to a retesting of the $108,000 mark. However, the growing demand for short-term Treasury bonds alone should not be seen as a long-term bearish signal. As the market continues to navigate economic uncertainty, it is essential to consider the complex relationships between traditional assets and cryptocurrencies.
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