Fed Rate Cut Expectations Rise, Bitcoin Rallies Strongly, Can It Hold Above $60,000?The Federal Reserve is set to announce its latest interest rate policy at around 2:00 AM Beijing time on Thursday (September 19th). All analysts anticipate a rate cut, but opinions diverge on whether the cut will be 25 basis points or 50 basis points
Fed Rate Cut Expectations Rise, Bitcoin Rallies Strongly, Can It Hold Above $60,000?
The Federal Reserve is set to announce its latest interest rate policy at around 2:00 AM Beijing time on Thursday (September 19th). All analysts anticipate a rate cut, but opinions diverge on whether the cut will be 25 basis points or 50 basis points. FedWatch data shows the current market expectation of a 25-basis point cut at 35% and a 50-basis point cut at 65%.
As the market awaits the Fed's decision on interest rates, US stock investors are hesitant to make any significant moves. While the US Department of Commerce announced on Tuesday that August retail sales rose 0.1% month-on-month, exceeding market expectations and easing investor concerns about a potential sharp economic slowdown, the four major US stock indices closed Tuesday largely flat.
Performance of the Four Major US Stock Indices:
- Dow Jones Industrial Average fell 15.90 points or 0.04%, closing at 41,606.18 points.
- S&P 500 Index rose 1.49 points or 0.03%, closing at 5,634.58 points.
- Nasdaq Composite Index rose 35.93 points or 0.2%, closing at 17,628.06 points.
- Philadelphia Semiconductor Index rose 1.66 points or 0.03%, closing at 4,912.10 points.
However, in contrast to the quiet performance of US stocks, Bitcoin has begun to experience a significant surge. After a sharp drop to a low of $57,431 at midnight yesterday, Bitcoin rebounded sharply, quickly surging after 10 PM last night. At 11:15 PM, it briefly touched $61,343, marking its highest price since September, and currently continues to fluctuate around $60,000.
There has been speculation in the past that Bitcoin is a leading indicator of the overall economy. Rate cuts are typically considered a significant positive for risk assets like Bitcoin, injecting substantial liquidity into the market. Therefore, the strong performance of Bitcoin ahead of a potential rate cut could be a bullish signal, but is it really?
Derivatives Market Not Optimistic, Yet Bitcoin Continues to Rise
Derivatives data suggests that Bitcoin investors lack enthusiasm. Despite Bitcoin briefly breaking through $61,000, traders remain skeptical about the sustainability of the upward momentum.
To assess whether Bitcoin traders are becoming bullish, we can examine the BTC futures premium. After approaching a neutral level of 5% on September 16th, the Bitcoin futures premium has remained at 6%. Although Bitcoin surged from below $58,000 to $61,000, investor sentiment remains cautious, indicating a lack of confidence among traders. Hence, it remains uncertain whether $61,000 can become a support level.
Additionally, the 25% skew indicator for Bitcoin options currently stands at just below 2%, signifying a near-equal pricing of put and call options. This reflects a neutral market sentiment with no obvious bullish sentiment. This neutral sentiment has persisted over the past week.
Fed's Decision Will Influence Bitcoin's Trajectory
The Fed's announcement of a rate cut later today, whether 25 or 50 basis points, will likely fall within market expectations. However, a rate cut of 75 basis points could indicate a greater risk of recession than previously anticipated, possibly leading to more dramatic volatility in Bitcoin.
Beyond the interest rate decision, the market will closely monitor two key factors that could influence Bitcoin's price:
- The "Dot Plot" in the Fed's quarterly forecast update, which will reveal the Fed members' expectations for interest rate trajectories in the coming years. Overly aggressive projections could deepen market recessionary expectations.
- Fed Chair Powell's press conference at 2:30 PM, where he will share his views on future policy. A hawkish stance could impact market sentiment.
Market participants generally believe that the Fed's rate cut decision and subsequent interpretations will have a significant impact on Bitcoin's trajectory. Whether it can solidify its position above $60,000 and continue its upward journey depends on the specifics of the Fed's policies and the market's response.
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