Bitcoin’s price surged last week, increasing by 12.14% and recovering the losses from a tepid September. While altcoins primarily fueled significant rallies from July to September, this time Bitcoin led the charge.
During this period, major altcoins like Ethereum (ETH) and Solana (SOL) recorded modest gains of 12.90% and 13.24%, respectively.
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Reasons for the Bull Run: Shutdowns, Jobs, and the Fed
The primary driver behind last week’s rally was the US government shutdown, which commenced at midnight EST on Wednesday. During a shutdown, federal employees cease work, halting government spending, including employee salaries.
Market observers perceived this as a significant source of economic uncertainty, speculating it would lead the Federal Reserve to reduce interest rates during the upcoming FOMC meeting in late October.
According to CME Group’s FedWatch Tool, the probability of a US interest rate cut in October was approximately 89% on September 30. However, following the confirmation of the government shutdown later that day, this probability skyrocketed to 98%. Consequently, Bitcoin, trading near the $112,000 level, began its rapid ascent.
Additionally, disappointing jobs data fueled Bitcoin’s bullish momentum. The US ADP Employment Report for September reflected a decline of -32,000, significantly lower than the forecast of +50,000, indicating a downturn in the US labor market.
FedWatch indicates that the market is anticipating four additional rate cuts by June next year. Since the onset of the shutdown, the US Republican Party has announced it will lay off further federal employees during this period.
This action is viewed as an attempt to achieve the federal employee reductions that President Donald Trump aimed for during his presidency. If successful, the US unemployment rate, currently at 4.3%, could rise significantly. With non-farm payrolls already weakening, an uptick in unemployment might compel the Fed to seek further rate cuts.
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Japanese Politics Also Influences Market
On Friday, Sanae Takaichi was elected president of Japan’s Liberal Democratic Party and is expected to assume the role of prime minister. She is anticipated to implement policies that will weaken the yen.
While her predecessor, Fumio Kishida, contemplated raising interest rates to combat inflation, Takaichi’s policies are expected to facilitate an easing of monetary policy. Amid this backdrop, Bitcoin’s price briefly exceeded $125,500 over the weekend, marking a new all-time high.
In conclusion, Bitcoin’s price surge can be attributed to market participants swiftly reacting to expected future developments. They foresee a further easing of global liquidity soon. However, predicting market sentiment changes with the continuation of the US government shutdown remains challenging.
The US Treasury’s bond auctions on Monday and Tuesday will be this week’s focal event. During these two days, the Treasury will release $249 billion in short-term bonds. According to historical precedents, these auctions are likely to proceed despite the shutdown.
This could significantly limit the market’s surplus liquidity in the absence of government spending. Bitcoin’s value has increased by over 10% in a mere three days. It remains uncertain whether it can maintain its upward trajectory amid a short-term liquidity squeeze.
Attention on Powell’s Thursday Address
A variety of macro indicators are set for release this week. On Monday, the Conference Board’s Employment Trends Index will be published.
Tuesday will feature the New York Fed’s Survey of Consumer Expectations. Wednesday will see the release of the minutes from the September FOMC meeting alongside a US 10-year Treasury auction.
On Thursday, Fed Chair Jerome Powell is scheduled to deliver a speech, coinciding with a US 30-year Treasury auction. Several other Fed officials are also slated to speak publicly. Nonetheless, these events are unlikely to disrupt the market’s strong anticipation of a rate cut in October.
Instead, unplanned government shutdown-related actions from the US Congress could influence the market. The Trump administration’s strategy of laying off federal employees may also introduce volatility. Here’s hoping investors enjoy a lucrative week.
