Bitcoin is one of the assets many expect will see massive spikes after the much-anticipated rate cut happens.
The Federal Reserve is currently sitting after a bit of drama a few weeks ago, following Donald Trump’s attempt to remove a member of the Federal Reserve Board of Governors. Lisa Cook appealed the removal and won.
Nonetheless, the board welcomed a new member before convening. Stephen Miran took office a few hours ago, replacing Adriana Kugler.
Away from the events within the board, the Federal Reserve has started the proceedings for potentially the first rate cut of 2025. Investors are very optimistic that it will happen, showing their excitement by placing bets on Polymarket.
Based on their actions on the platform, it’s no longer a question of whether the cut will happen, but by how many basis points. Many believe that it would be by 25 bps, and very few express conviction of 50 bps.
Short-term Holders Join Bullish Trend
Recent behaviour of short-term investors confirms that they are anticipating a massive move. Their conviction is based on the belief that the FOMC will yield positive results.
A closer look at on-chain data reveals that the number of sellers from the 1 to 3-month holders cohort significantly slowed, causing the SOPR to bounce off neutral. It also shows that Bitcoin is attracting new buyers, with most of them returning to profitability.
Nonetheless, it is worth noting the renewed confidence followed BTC’s hike above $114k. Most sub-3-month holders were in a loss as their cost basis was between $111.8k and $114.2k. As a result, a surge above the region sparked appetite for more increases.
Other key factors driving Bitcoin’s recent surge are the massive accumulation of ETFs and bullish Futures traders. Additionally, institutional inflows have increased, with capital flows rising, and the total supply in profits is currently growing.
Nonetheless, a new trend is unfolding in the spot market: the spot volume on Binance has recently surpassed that of all other exchanges combined. When this happens, “it usually signals that large traders and market makers are showing strong interest in spot trading.”
Aside from on-chain data, the apex coin has seen significant improvement since the start of September. It has increased by over 7% over the last sixteen days. Additionally, it rose to a new high a few hours ago, reaching $116,900 for the first time in more than twenty days.
It’s Not All Bullsh for Bitcoin
While the impending rate cut is sparking massive optimism across the market, there’s a chance that the apex coin will see a notable retracement after the rate cut.
JP Morgan recently commented on the impending event, stating that “When the Fed cuts rates with the S&P 500 within 1% of an all-time high, it results in an average return of +15% over the next 12 months.” However, the firm noted that there is a chance of notable retracement on the 1-month scale.
The conclusion suggests that investors may take profits after the rate announcement, resulting in notable dips in the first few weeks following this key event.
The selloffs will also affect Bitcoin. A case study is what transpired after the Fed Chairperson announced the potential rate cut back in August. The largest coin surged by almost 4% on August 22 but retraced by 8% over the next few days.
Another event occurred on December 18, 2024, when the feds effected a 25-basis-point cut. The buildup to the announcement was bullish. However, BTC saw massive retracements when it happened, dropping by almost 6% and 3% the next day.
A closer look at the 1-day chart reveals that the apex coin plummeted by 13% before rebounding. Although it recovered a few days later, the downtrend resumed, continuing until April 2025 and resulting in losses of almost 32%.
A repeat of this trend will likely result in notable selling pressure that may persist over the next three months.
Can the Rate Cut Trigger the Bear Market?
Iceman is of the opinion that the rate cut may trigger a bear market not just for the crypto market but also for stocks. He noted that “Rate cuts are just getting started… This was the main goal of these tariffs, in my opinion. Slow down CPI and the 10-year with tariffs slowing down the economy… Do this long enough to force the fed to cut.”
The market watcher added that the goal of the levies is deflationary, which is contrary to the general belief, as tariffs drive prices higher. However, they can be deflationary if households are broke and can’t afford the normal items. This will lead to weaker demand, and businesses will reduce prices to attract more customers, delay hiring, and undertake other measures to reduce production costs.
Iceman noted that this plot started in 2022 and is ongoing. “Now with cuts, people will have money again… Those tariffs can now be afforded. That’ll make CPI go up, and the 10-year not far behind,” he stated.
However, the latest bid with levies is not sustainable, as the cost will eventually catch up, and calls for a rate cut will likely arise again, causing a massive selloff across the crypto market, with Bitcoin leading the selling.
Nonetheless, other economic indicators align with Iceman’s prediction. For the first time in nearly 30 years, seven out of 10 Americans believe their income will not keep pace with rising prices. As a result, the cost of living fear is increasing.
By comparison, only 5 in 10 persons expressed such fears during the 2008 financial crisis. Additionally, in 2019 and 2020, only 3 in 10 adults expected this.
Bitcoin Stares Down $100k
A previous outlook for September indicated an increased likelihood of a drop below $100k. Bitcoin trades at $116 at the time of writing, reducing the chances of this happening.
The analysis noted that BTC became overbought in the first week of July. Historically, after entering overbought territory, the apex coin tends to lose more than 25% of its value on average. It concluded by stating that the apex coin may retraced by 15%.
The likelihood of this happening in the next two months remains high if JP Morgan’s prediction comes true.
