Bitcoin eases slightly as traders brace for Fed interest rate cut

• Bitcoin is hovering around $60,000 ahead of a key interest rate decision by the US Federal Reserve.
• Fed Funds futures forecast a 63% chance the US Federal Reserve will cut rates by 50 basis points.
• On-chain data supports an optimistic outlook as new whales of BTC accumulate while old whales remain stationary.

Bitcoin (BTC) retreats slightly, trading above $59,000 on Wednesday as crypto markets brace for the upcoming US Federal Reserve (Fed) interest rate decision, which is expected to cut interest rates for the first time in more than four years. Even though traders are widely anticipating the rate cut, the meeting is surrounded by uncertainty about how big that cut will be, a key element that could influence BTC prices and the crypto markets as a whole.

Bitcoin Awaits Fed Decision

Bitcoin rose 3.6% to close above $60,000 on Tuesday, just a day before members of the US Federal Reserve decide on interest rates. While BTC gained 5%, stock markets showed mixed signals, hovering near previous highs, while gold fell over 0.5% on the day.

The main question mark surrounding the Fed’s decision is whether the US central bank will opt for a standard rate cut of 25 basis points (bps) or go for a large cut of 50 basis points.

According to CME’s Fed watcher, which tracks the probabilities of Fed rate changes as implied by future Fed Funds prices, there is a 63% probability of a 50 basis point cut, while the remaining 37 % indicates a discount of 25 bps. . The result has the potential to move crypto markets.

US interest rates are currently in a target range that extends between 5.25% and 5.5%. Economists, investors and analysts constantly try to predict how this level will change in the near future, because it is the key to determining the wealth of the economy and therefore the valuation of currencies, stocks, commodities or cryptocurrencies.

FXStreet Senior Analyst Yohay Elam outlines four scenarios that could play out today and their implications for markets, depending on the decision and the message from Federal Reserve Chairman Jerome Powell:

1) Big Cut, Confident Message: Bullish Crypto. In this scenario, Powell is giving the markets what they want without causing panic. High probability.

2) Confident, small-cut message: A whipsaw movement is likely, with crypto markets falling and then recovering slightly. A 25 bps cut would be disappointing and trigger a knee-jerk reaction. However, confidence in the economy and an open door to cut faster later could cause a reversal. Medium-high probability.

3) Big cut, worried message: A seesaw movement is also likely, with crypto initially rising and retreating afterwards. A 50 bps reduction is good news, but if it comes for the wrong reasons, the picture changes. Concerns about an economic downturn would show the mood of the market. Average probability.

4) Small cut, worried message: Cryptogen down. In this scenario, the Fed is starting small, but is worried about the economy. Crypto markets would suffer, but could recover later, hoping for lower rates in the future. Low probability.

Rate reduction probability diagram

US Spot Exchange Traded Funds (ETF) data posted a second straight day of inflows of $186.80 million on Tuesday. Studying ETF flow data can be useful to observe institutional investors’ sentiment towards Bitcoin. If such flows continue, the demand for Bitcoin will increase, leading to an increase in price. Total Bitcoin reserves held by the 11 US spot Bitcoin ETFs rose to $49.95 billion in assets under management (AUM) after a slight decline in early September.

Bitcoin Spot ETF net flow chart

Bitcoin ETF AUM chart

Analyzing CrytpoQuant data, the outlook for Bitcoin is bullish. The chart below shows the BTC balances of new and old whales.

New whales (orange line) refer to addresses with a current balance of more than 1,000 BTC and an average UTXO age of less than 155 days. Old whales (yellow) refer to addresses with a current balance of over 1,000 BTC and an average UTXO age of 155 days or more.

From the beginning of September until today, the new BTC Whale balance has increased from 1.52 million to 1.70 million, while the old Whale balance shows no change during the same period. This indicates that the new whales are accumulating BTC while the old wallets are still holding it.

Chart of Bitcoin New Whales and Old Whales

Technical Analysis: BTC breaks above the downtrend line

Bitcoin price rose 3.6% on Tuesday and broke above the downtrend line (drawn from multiple highs since late July), which it failed to close above this trendline last week. However, on Wednesday, it is pulling back and trading around $59,840 after facing resistance from the 100-day Exponential Moving Average (EMA) at $60,718.

If BTC breaks and closes its 100-day EMA at $60,718, it could first rise to retest its 61.8% Fibonacci retracement level around $62,000. A successful close above $62,000 could extend a further 5.5% rally to retest the daily resistance level at $65,379.

The MACD (Moving Average Convergence Divergence) indicator further supports Bitcoin’s rise, signaling a bullish crossover on the daily chart. The MACD line (blue line) has moved above the signal line (yellow line), giving a buy signal. It shows rising green histogram bars above the neutral zero line, also suggesting that Bitcoin price may experience an upward push.

Meanwhile, the Relative Strength Index (RSI) remains broadly unchanged and very close to its neutral level, indicating a lack of momentum.

BTC/USDT Daily Chart

However, if BTC closes below the daily support level of $56,022, the bullish thesis will be invalidated. It could drop 3.6% to retest the psychologically important level at $54,000.