Key Points
- The Federal Reserve’s potential rate cut could boost non-traditional investments like Bitcoin.
- Bitcoin’s price and MVRV ratio could rise as more capital flows in, reflecting a bullish outlook.
The CME’s Fed Watch tool has indicated a 96% probability of a 25 basis points (bps) rate cut in the coming week. This is a notable increase from 89% in the last 24 hours, and 65% a month ago. The likelihood of zero bps is only at 5% while the chance of a rate cut greater than 25 bps stands at just 1%.
Effects of Rate Cut on Bitcoin
Due to lower inflation rates outside housing and total inflation slightly above target due to housing costs, a rate cut by the Fed could potentially boost non-traditional investments like Bitcoin. Historically, lower rates have made cryptocurrencies more attractive by reducing the appeal of yield-bearing assets and facilitating increased liquidity and institutional borrowing at lower costs. Therefore, a rate cut could signal a bullish outlook for Bitcoin, suggesting a possible continuation of its rally as capital inflows into the asset increase.
Bitcoin’s Price and MVRV
Bitcoin’s 4-hour chart shows consolidation in a symmetrical triangle pattern, a continuation pattern, supporting the rally’s continuation. The price has been moving in increasingly smaller oscillations between the two converging trendlines indicating consolidation before a breakout. The breakout to the upside suggests a bullish continuation.
Data from Coinglass shows a massive concentration of leveraged orders risking liquidation around the current price of Bitcoin across different exchanges like Binance, OKX, and Bybit. If Bitcoin surpasses $105K, over $4.1 billion worth of BTC shorts could be poised for liquidation, potentially amplifying the uptrend due to forced coverings by short sellers.
Further analysis of the MVRV ratio indicates that Bitcoin’s market price is approximately 2.53 times higher than its realized value. This ratio fluctuates, peaking during periods of high market optimism, then normalizing or dipping during corrections. Notably, the MVRV ratio has not reached the extreme peaks observed in earlier cycles, indicating that Bitcoin may not be at a market peak. If the Federal Reserve cuts interest rates, it could enhance appetite for Bitcoin, potentially driving both the price and MVRV ratio higher as more capital flows in.