Fed Cut Lights The Fuse: Bitcoin Rebounds And Bulls Predict More Upside

Overview

Crypto markets experienced a modest increase following the US Federal Reserve’s recent decision to cut interest rates. This move has generated mixed reactions among traders, who are now keenly observing how the market will respond in the coming days.

Fed Cuts and Market Reactions

The US Federal Reserve has implemented three consecutive interest rate cuts, totaling 0.75%, from September to December. While this decision was largely anticipated, the market’s response has been varied and somewhat volatile. Jeff Ko, the chief analyst at CoinEx, noted that much of the Fed’s actions were already factored into the market, and the updated dot plot appeared to be slightly more hawkish than what some market participants had hoped for.

To address liquidity and lower short-term rates, the Fed also engaged in $40 billion in short-term Treasury purchases. This action is viewed as a technical measure rather than as a broad stimulus initiative. The market reacted mildly positively, leading to an uptick in US stocks, which subsequently provided Bitcoin with some support after an initial decline.

Short-Term Market Dynamics

Onchain analytics firm Santiment reported that the interest rate cuts have led to a typical “buy the rumor, sell the news” scenario. This pattern indicates that initial optimism surrounding the cuts is often followed by short selling. Each rate cut has historically resulted in brief pullbacks in the market, despite the long-term bullish outlook for cryptocurrencies.

Santiment further highlighted that a slight wave of fear, uncertainty, and doubt (FUD) or retail selling frequently signals the conclusion of the mild post-cut downturn, paving the way for a potential rebound once market conditions stabilize.

Technical Analysis of Bitcoin

In the aftermath of the Fed’s announcements, Bitcoin displayed considerable volatility. The cryptocurrency initially dipped below $90,000 but later surged to approximately $93,500 on Coinbase before settling around $92,300 at the time of reporting. Traders are currently monitoring key resistance levels, which are identified between $97,000 and $108,000.

On the daily chart, Bitcoin remains within a small rising channel that exists within a larger downtrend. Technical analysts have noted that the MACD histogram is nearing a positive crossover, which some interpret as a potential sign of renewed momentum for the cryptocurrency.

Despite these dynamics, exchange-traded fund (ETF) activity has been relatively subdued, with only $219 million in net inflows since late November. This lack of robust ETF activity may contribute to a cautious sentiment among some investors.

Dollar Weakness and Equity Signals

The backdrop of a weaker dollar has also influenced the market, with the DXY index falling to 98.36 and exhibiting bearish momentum. The Nasdaq’s recent movement above its 50-, 100-, and 200-day simple moving averages has provided temporary support for risk assets, including Bitcoin. However, the correlation between equities and Bitcoin remains inconsistent, with losses in the stock market typically exerting a more significant impact on Bitcoin than gains do in the opposite direction. This creates an asymmetric risk profile for traders.

From Author

The current landscape of the crypto market is notably influenced by the Federal Reserve’s interest rate cuts. While these cuts are generally perceived as bullish for cryptocurrencies in the long run, the immediate aftermath has been marked by volatility and cautious trading behavior. Observing how traders react to these macroeconomic changes will be crucial for understanding Bitcoin’s trajectory in the near term.

Impact on the crypto market

• The Federal Reserve’s rate cuts have created a backdrop of mixed market reactions, leading to volatility in Bitcoin’s price.
• Short-term trading patterns indicate a potential “buy the rumor, sell the news” sentiment following the Fed’s announcements.
• Technical indicators suggest that Bitcoin may be on the verge of renewed momentum, pending market stabilization.
• Weakness in the dollar and positive movement in equities have temporarily supported Bitcoin, though correlations remain inconsistent.
• Investor caution persists due to tepid ETF activity, which may limit significant inflows into the crypto market.