The system is broken, stated the Kobeissi Letter, as the US stock market experienced a decline alongside cryptocurrency following the release of the robust jobs report. Attention was focused on the US jobs report released on Friday, revealing that the US economy added 162,000 jobs in August, significantly surpassing expectations of approximately 55,000-58,000. The unemployment rate held steady at 4.1%, and the initially reported loss of 23,000 jobs for July was revised upward to a gain of 21,000. The response in financial markets was immediate. Bitcoin experienced a significant decline, falling below $79,000 after facing resistance at $82,400 earlier in the day, with the US stock market also reflecting this downward trend.
In contrast, Treasury yields and the dollar experienced an uptick. While a robust labour market may initially appear favourable for financial markets, the implications for monetary policy reveal a more complex narrative. Such a favourable labour environment provides the Federal Reserve with greater latitude to continue combating inflation without the concern that increased borrowing costs will lead to a significant decline in employment. Perhaps that explains why the probability of a rate hike surged to over 50% following the release of the jobs report. Consequently, robust economic indicators may translate into adverse news for risk assets in the context of persistently high inflation. The analysts asserted that “the system is broken,” highlighting the paradox of declining stocks in the face of the economy generating significantly more jobs than anticipated.
Even US President Donald Trump was taken aback by the initial market reaction. Expectations for higher interest rates generally lead to an increase in Treasury yields and the dollar, while concurrently tightening financial conditions diminishes investors’ appetite for risk assets. That should clarify BTC’s immediate response and price decline following the release of the report. Bitcoin analyst Adam Livingston outlined a different scenario beyond Friday’s reaction, arguing that persistent inflation, rising debt, and the monetary response ultimately required to sustain the financial system strengthen BTC’s long-term value proposition.
In that framework, elevated interest rates may exert pressure on the cryptocurrency in the short term; however, they do not address the fundamental issues that BTC was intended to mitigate. The asset remains highly responsive to short-term interest-rate expectations; however, should inflation persist at elevated levels while governments maintain substantial deficits and debt burdens increase, the long-term rationale for holding a scarce asset with a fixed supply may significantly strengthen.
