Bitcoin climbed above $80,000 on Thursday as crypto and US stocks rallied together, with traders reacting to fresh Federal Reserve comments that reduced expectations for another interest rate increase.
Bitcoin traded around $80,270, gaining nearly 3% over 24 hours, while the broader crypto market also moved higher. Ethereum approached $2,500 after rising around 2.2%, while XRP jumped approximately 6%.
The sudden rally hit bearish traders particularly hard. More than $327 million in crypto short positions were reportedly liquidated within one hour, helping accelerate the upward move as leveraged traders were forced out of their positions.
The apparent catalyst came from Federal Reserve Governor Christopher Waller, who signaled that he could support leaving the central bank's benchmark interest rate unchanged if upcoming inflation data continues showing improvement.
Rate Hike Expectations Drop After Waller Comments
Waller said he would be “inclined to support” holding interest rates at their current level if inflation continues moving in the right direction.
Markets quickly adjusted their expectations.
According to CME FedWatch data cited in the report, the probability of a rate increase at the Fed's September 15-16 meeting fell to around 50.4%, compared with 63.2% one day earlier.
The 10-year US Treasury yield also declined to approximately 4.73% after reaching its highest level since November 2023 a day earlier.
The shift marked a sharp change from the previous week, when Fed Chair Kevin Warsh delivered a more hawkish message at Jackson Hole. Bitcoin subsequently dropped as low as $76,877, while expectations for another rate increase strengthened.
Thursday's recovery returned BTC to the $80,000 region, a level the cryptocurrency has tested multiple times without consistently holding above it.
Stocks Rally Alongside Crypto
The positive reaction extended beyond digital assets, with major US stock indexes also advancing.
The Dow Jones Industrial Average gained approximately 453 points, or 0.9%, while both the S&P 500 and Nasdaq climbed close to 1%.
Technology stocks contributed to the move. Nvidia gained after confirming a roughly $13 billion acquisition of AI model platform Hugging Face, while Snowflake advanced following stronger-than-expected earnings.
The connection between interest rates and risk assets remains important for both stocks and cryptocurrency.
A rate increase would represent the Fed's first hike since July 2023, when policymakers pushed the benchmark rate to a 22-year high of between 5.25% and 5.50%.
Higher interest rates can make cash and bonds more attractive while increasing borrowing costs and strengthening the dollar. That environment can create pressure on risk assets such as Bitcoin and equities.
Short Sellers Take the Biggest Hit
Crypto derivatives data suggests the rally was amplified by a substantial short squeeze rather than being driven exclusively by fresh buying.
More than $500 million in leveraged crypto positions were reportedly liquidated over 24 hours. Approximately $416 million involved short positions, compared with roughly $92 million in longs.
More than 119,000 traders were liquidated during the period.
The squeeze accelerated rapidly, with over $329 million in shorts liquidated within a single hour, including approximately $86 million in Bitcoin positions.
When prices rise sharply, short sellers can be forced to close positions by buying back the underlying asset. That additional buying can push prices even higher and trigger further liquidations, creating a cascading effect.
A similar mechanism contributed to a roughly $570 million liquidation wave during Bitcoin's rebound from around $57,000 last month.
August Jobs Report Becomes Next Market Test
Attention now shifts to the August US employment report, scheduled for Friday morning and representing one of the final major economic releases before the Fed's September meeting.
Waller expects relatively limited changes in the labor market. Monthly job creation averaged approximately 60,000 through July, while unemployment stood at 4.1%.
A weaker-than-expected employment report could further influence expectations surrounding the Fed's next decision.
Recent market moves demonstrate how quickly those expectations can change. July's disappointing employment figures previously caused traders to reduce rate-hike expectations significantly, while Waller's latest comments produced another major adjustment.
For Bitcoin, holding above $80,000 will now be the immediate test. The latest rally shows that Federal Reserve expectations remain a major driver of crypto markets, particularly when leveraged positioning leaves traders vulnerable to sudden squeezes.
