Bitcoin Rally Halted as Fed Rate Bets Skyrocket Ahead of Jobs Report

Bitcoin's August performance was its strongest in nearly two years, with a gain of about 24% to trade around $78,000 on Tuesday. The cryptocurrency began September near this price, but its rally is now being put to the test as traders sharply increase bets that the Federal Reserve will raise interest rates later this month.

The U.S. jobs report scheduled for release at 8:30 a.m. ET Friday could quickly test the rally, with expectations of higher interest rates changing rapidly since Fed Chair Kevin Warsh's Jackson Hole speech last week. Traders now assign roughly a two-thirds probability to a quarter-point September rate increase, up from less than 40% a week earlier.

A stronger-than-expected reading could reinforce expectations for higher rates, while weaker hiring could give policymakers more reason to weigh labor-market risks alongside persistent inflation. Bitcoin is already contending with rising bond yields and higher energy prices following renewed fighting involving the U.S. and Iran.