Bitcoin Prices Drop as Economic Indicators Weigh Heavily

U.S. Economic Data and Interest Rate Cuts

The expectation for a rate cut in January has nearly vanished. The unemployment rate came in below both expectations and the previous month’s figures. This lends some support to Federal Reserve members’ assertions that no significant collapse is happening on the employment front, aligning with their 2025 projection of three rate cuts. Consequently, market expectations for 2026 have now decreased to 50 basis points.

While Trump and his team anticipate a reduction up to 10 basis points, attention now turns to the upcoming inflation report. If next week’s inflation report matches or exceeds expectations, the Fed will have little reason for an imminent rate cut and might opt for a gradual policy approach for a soft landing.

Key points from the report:

• The Non-Farm Payrolls data for November was revised down by 8,000.
• Retail lost 25,000 jobs in December, with supermarkets and general stores accounting for a 19,000 reduction.
• The average hourly earnings for all employees on private nonfarm payrolls rose by 0.3% to $37.02 in December.
• Long-term unemployment (27 weeks or more) remained relatively unchanged at 1.9 million in December but increased by 397,000 from a year earlier.
• Average monthly employment gains in 2025 (49,000) lagged significantly behind those of 2024 (168,000).

Impact on Cryptocurrencies

The outcome for investors wasn’t unexpected; although BTC prices briefly rose by $200-300 after the report’s release, they soon retreated downward. It seems likely that Bitcoin will fall below $90,000 in the coming hours as annual interest rate cut expectations are revised downward. In May, the Fed will be under the control of a Trump-appointed chair, but even with a new leader, it will remain bound by data and may not implement rate cuts if employment rebounds.

The December inflation report expected next week will provide clearer insights into this year’s interest rate cut trajectory. As of now, signals for “employment contraction,” which would make rate cuts in the last quarter of 2025 mandatory, have weakened.