Key Points
- Bitcoin could experience market volatility due to slow Fed rate cuts and increased BTC supply, according to Coinbase analysts.
- The increased BTC supply could limit strong upward momentum, with $90 billion worth of BTC liquidated by long-term holders.
Bitcoin’s Potential Market Volatility
Coinbase analysts have issued a warning that Bitcoin could face market instability in the mid-term. Analysts David Duong and David Han pointed to the slow pace of Federal Reserve rate cuts and the growing supply of Bitcoin in the market as potential causes.
“The broader macroeconomic backdrop remains a mixed bag. The reduced likelihood of Fed rate cuts on the back of stronger employment data and inflation risks may temper risk asset performance in the short to medium term,” they stated.
Recent data from the U.S economy has shown persistent inflation and robust labor markets, which further reduces the chances of additional Fed rate cuts. Traders are predicting that the Fed will maintain the rate at 4.25%-4.50% for the upcoming FOMC meeting at the end of January.
Rising BTC Sell Pressure
The analysts also noted that an increase in the supply of Bitcoin could limit strong upside momentum. “We think bitcoin’s supply side story may also temper some upside expectations in the near term. The active supply of BTC has spiked to 4.6M, up from 2.7M in October 2024,” they explained.
The report revealed that nearly $90 billion worth of BTC has been liquidated by long-term holders, marking the $100k level as a key supply zone for early investors. This long-term holder supply pressure could confine Bitcoin within a price range.
“These supply-side dynamics suggest there could be a period of grinding consolidation for bitcoin in the coming months similar to the onchain signals we observed when bitcoin breached all-time-highs in March 2024,” they added.
In the meantime, BTC has swept the range lows and bounced back, but the recovery has stalled at $95k. This reinforces the $90k-$100k consolidation range mentioned by the analysts.