Bitcoin Traders Eye Federal Reserve's Rate Cut Prospects
By: Eva Baxter
The likelihood of the U.S. Federal Reserve cutting interest rates in December has significantly increased, with FedWatch tools implying a 70% chance of a 25 basis point reduction. This development follows remarks by John Williams, President of the Federal Reserve Bank of New York, who suggested that rate cuts could occur without jeopardizing the 2% inflation target. This news has potentially significant implications for Bitcoin, as it is likely to influence real yields and liquidity, both of which are crucial factors for the cryptocurrency. Learn more about the Federal Reserve here.
Bitcoin's price action has been turbulent, with the crypto asset plunging from $91,554 to $80,600 between November 20 and 21 before bouncing back to $84,117. The hesitation among investors stems from uncertainty over whether Bitcoin has hit its local top at $126,000 this cycle and whether a rate cut would be enough to reignite upward momentum. Historically, Bitcoin performs well in environments with compressed real yields and expanded liquidity, conditions that a December rate cut could help restore.
On-chain analysis and derivatives trading activity, tracked by Glassnode, suggest that current market sentiment remains defensive. Many recent Bitcoin purchasers are at a loss, with the asset trading below key technical levels, thus creating resistance around $95,000-$97,000. The market sees a distribution of holders embedded in losses, reminiscent of the 2022 bear market, suggesting Bitcoin faces upward pressure.
This evolving macroeconomic backdrop has significant ramifications for Bitcoin traders. While the probability of a rate cut could offer a much-needed boost by capping real yields and increasing liquidity, the immediate market setup shows cautious positioning. The response from Bitcoin, therefore, hinges critically on the Fed's guidance regarding future policy moves. If the cut signals the start of an easing cycle, Bitcoin may see enhanced performance. Without such assurances, the cryptocurrency could remain bound under existing resistances.
