Bitcoin falls on dismal US jobs data, but Q4 rally to $185K still possible
News Summary
The US Labor Department made the largest payroll revision in history, wiping 911,000 jobs from previously reported data for the 12 months ending March 2025. Losses were concentrated in consumer-driven categories like Leisure and Hospitality and Trade, Transportation, and Utilities, signaling a scale of labor market weakness not seen outside the Great Depression and the 2020 pandemic. This revision, combined with other recent downward adjustments and weak job gains, solidifies expectations for a Federal Reserve rate cut at its upcoming meeting. Despite core inflation remaining above 3% and GDP growth near 3%, the Fed is expected to prioritize labor market weakness, adopting a "dovish but cautious" stance. Traditional store-of-value gold has already surged 40% this year, anticipating Fed action. Analysts believe Bitcoin, which thrives on liquidity expansions, is poised to follow. Bitwise Strategist André Dragosch notes expanding macro liquidity, while Tephra Digital forecasts Bitcoin could reach $167,000–$185,000 in Q4 if its correlation with M2 money supply and gold holds.
Background
In 2025, the US economy is at a critical juncture, with the Federal Reserve balancing persistent inflation against emerging labor market weakness. Despite core Consumer Price Index (CPI) remaining above 3% and GDP growth near 3%, the health of the labor market has become a growing focus for policymakers. Recent months have seen multiple downward revisions to US jobs data by the Labor Department, indicating that the actual state of the labor market may be more fragile than previously reported. This trend of data revisions, coupled with weak monthly job gains, is intensifying pressure on the Federal Reserve to cut interest rates, even if it means acting while inflation remains elevated.
In-Depth AI Insights
What are the deeper implications of the Fed prioritizing labor market weakness over inflation in its rate decision? - This strategy likely reflects political pressure on the Trump administration regarding employment figures and economic growth, especially in its second term. - Cutting rates with inflation still elevated could lead to a 'stagflation-lite' scenario, where slower growth coexists with persistent price increases. - Significant liquidity expansion will disproportionately benefit risk assets, such as cryptocurrencies, potentially leading to further asset price appreciation detached from fundamentals. - It might also suggest the Fed's long-term inflation expectations, believing inflation will naturally recede at some point in the future, or revealing limitations in its toolkit for such complex situations. How might this unprecedented payroll revision impact the broader economic narrative and investor confidence beyond immediate rate cut expectations? - A revision of this magnitude erodes market confidence in the reliability of official economic data, prompting investors to look deeper into underlying economic fundamentals. - It shifts the focus from superficially strong growth to underlying economic fragility, potentially leading to downward revisions in corporate earnings expectations. - While a Fed rate cut is anticipated, this "dovish but cautious" stance may not entirely assuage market concerns about economic health; instead, it could be interpreted as the central bank acknowledging deeper recessionary risks. - In the long term, data transparency and reporting accuracy will become a focal point for market discussions, potentially prompting scrutiny of data collection and dissemination mechanisms. Given Bitcoin's historical sensitivity to liquidity and its potential mirroring of gold, what are the key risks to its projected Q4 rally amidst this policy divergence? - If inflation proves stubbornly persistent or even accelerates, the Fed might be forced to pivot back to a hawkish stance later, rapidly withdrawing liquidity and stifling Bitcoin's rally. - Regulatory headwinds, particularly if the Trump administration takes a more stringent or unpredictable stance on cryptocurrencies in its second term, could dampen institutional investor enthusiasm. - Unexpected macroeconomic shocks, such as escalating geopolitical conflicts or renewed global supply chain disruptions, could trigger a flight to safety, leading to a broad sell-off in risk assets. - Significant profit-taking could occur after an initial rally, especially as Bitcoin approaches or surpasses previous all-time highs, as investors lock in gains.