The likelihood of a 25 basis points (bps) interest rate reduction by the Federal Reserve in December stood at 96%, as indicated by CME’s Fed Watch.
This percentage has seen a recent uptick from 89% within the past 24 hours, with a month ago standing at 65%.
While the probability of zero bps remains low at 5%, the chance of a rate cut exceeding 25 bps is merely 1%, suggesting limited expectations for such outcomes.
Given the subdued inflation rates beyond the housing sector and overall inflation hovering just above the target due to housing expenses, a Fed rate reduction could potentially bolster unconventional investments like Bitcoin [BTC].
Historically, the attractiveness of cryptocurrencies has been heightened during periods of lower interest rates, diminishing the allure of yield-bearing assets and facilitating enhanced liquidity and institutional borrowing at reduced expenses.
Consequently, an anticipated interest rate cut could pave the way for a bullish trajectory for Bitcoin, implying that the cryptocurrency might sustain its upward momentum as capital inflows intensify.
Price Movement Departs from Previous Pattern
An examination of BTC’s 4-hour chart reveals a consolidation phase within a symmetrical triangle pattern, typically signaling a continuation of the ongoing rally.
The recent performance of Bitcoin aligns with the expectation that future Fed rate reductions could drive additional price surges.
Price fluctuations have been narrowing between the converging trendlines, indicating a period of consolidation before a potential breakout. The upward breakout implies a favorable market sentiment.
In light of the Federal Reserve’s anticipated rate cuts, which may negatively impact the dollar, Bitcoin could emerge as a more appealing option for investors seeking higher returns. Consequently, if the expected rate reduction materializes, Bitcoin’s price could witness a further uptrend.
Leveraged Positions and BTC MVRV Indicator
Data from Coinglass highlights a substantial concentration of leveraged positions at risk of liquidation near Bitcoin’s current price across multiple exchanges such as Binance, OKX, and Bybit.
A breach past $105K could trigger liquidation of over $4.1 billion in BTC short positions, potentially amplifying the upward momentum through forced covering by short sellers.
The cumulative long liquidation leverage for Bitcoin has been steadily rising, indicating a growing market momentum.
Further analysis of the MVRV ratio, which currently stands at 2.53, suggests that Bitcoin’s market price is around 2.53 times higher than its realized value.
This ratio experiences fluctuations, peaking during periods of exuberance in the market and stabilizing or declining during corrective phases.
Remarkably, the MVRV ratio has not yet reached the extreme levels observed in past cycles, indicating that Bitcoin may not have reached its market peak. Should the Federal Reserve go ahead with interest rate cuts, the demand for Bitcoin may increase, potentially driving both its price and the MVRV ratio higher as more capital flows into the market. This outlook paints a positive picture without immediate signs of a market peak.