The price of Bitcoin fell to a two-month low on Monday, as markets reacted to the possibility of tighter monetary policy from the Federal Reserve.
On Monday, the Bitcoin price dropped as low as $89,800, falling below $90,000 for the first time since mid-November. It has been almost a month since Bitcoin reached an all-time high of $108,000, although it traded above $100,000 last week.
While market participants continue to speculate on potential changes in cryptocurrency regulation ahead of President-elect Donald Trump’s inauguration on January 20, macroeconomic factors have been driving Bitcoin’s performance, according to David Duong, Coinbase’s Head of Institutional Research.
Duong stated, “Given the recent employment data, concerns that the Fed may not cut rates in 2025 are putting pressure on assets across the board. However, if this decision is a result of a stronger economy, it may not be a lasting effect, in our opinion.”
Duong also mentioned that his team is “still cautiously optimistic” about Bitcoin’s performance in the first quarter of the fiscal year, but acknowledged that “the path is unlikely to be a smooth one.”
During his campaign, the president-elect positioned himself as a “crypto president” and pledged to create a strategic stockpile of Bitcoin that could influence other governments’ adoption of the cryptocurrency. However, financial market participants have become increasingly skeptical that the Fed will lower interest rates in the coming months due to strong labor market indicators.
Last Friday, markets dropped when the Bureau of Labor Statistics reported that U.S. employers added 256,000 jobs in December, surpassing economists’ expectation of 160,000 new jobs.
“Given a resilient labor market, we now think the Fed cutting cycle is over,” said Aditya Bhave, BofA Global Research Senior Economist, following Friday’s report.
As of now, traders believe there is a 30% chance that the Fed will maintain its current interest rates through its December meeting, up from 16% a week ago, according to CME FedWatch. A month ago, traders predicted only a 9% chance that the U.S. central bank’s easing campaign had ended.
Lower interest rates typically support risk assets such as stocks and cryptocurrencies. However, they can also contribute to inflation through lower borrowing costs and increased spending.
The Fed’s preferred measure of inflation, core PCE, will be released later this month after policymakers gather. In the meantime, economists expect the Consumer Price Index to show flat inflation at 2.7% for the 12 months through December, according to Trading Economics.
Analysts told Decrypt last week that rising bond yields have been pressuring risk assets amid macroeconomic concerns. On Monday, the 10-year treasury yield continued to rise, reaching its highest level since October 2023 at 4.799%, according to TradingView.
Last month, the Fed announced that it would cut rates at a slower pace than expected this year, with policymakers projecting two rate cuts instead of four. Meeting minutes released last week revealed that policymakers are focused on shifts in immigration and trade policy under the Trump administration, being cautious of their potential impact on inflation pressures.
Edited by Stacy Elliott.
Editor’s note: This story was updated after publication to correct the period of time since Bitcoin reached a price below $90,000.