Bitcoin’s Fate Tied to Federal Reserve’s Interest Rate Decision
The odds of a December rate cut by the Federal Reserve have surged to over 70%, according to CME FedWatch, following New York Fed President John Williams’ statement that the Fed could still cut interest rates in the “near term” without jeopardizing its 2% inflation target. This dramatic shift in expectations has significant implications for Bitcoin (BTC), which has been struggling to regain its footing after a recent downturn.
The interest rate cut narrative is crucial for Bitcoin, as it directly affects real returns and liquidity. Over the past two months, inflation-adjusted Treasury yields rose as markets priced in easing, pulling capital from high-beta assets and tightening global liquidity. If the Fed delivers the expected rate cuts and signals that more cuts are to come, real yields are likely to fall, and liquidity will rise, creating conditions that have historically correlated with Bitcoin’s outperformance.
Market Sentiment and On-Chain Data
Despite the improved odds of a rate cut, on-chain data from Glassnode and derivatives positioning indicate that the market has not yet turned around. Recent buyers are under pressure, ETFs are hemorrhaging, and options traders are paying double-digit premiums for downside protection. The Bitcoin price is below the short-term holder cost base and cooling bands, suggesting that recent buyers are underwater amid the current decline.
Glassnode estimates that 6.3 million BTC are currently underwater, mostly in the -10% to -23.6% range, a distribution that more closely resembles the range-bound bear market of 2022 than a full capitulation. The realized price of active investors is around $88,600, representing the average cost basis for coins that move regularly. The true market mean is around $82,000, marking the threshold between a mild correction and a deeper 2022-style bear phase.
Path Forward Depends on Fed’s Conviction
A December cut, accompanied by signs of further easing, would cap real yields and rebuild liquidity, conditions that Bitwise and S&P Global describe as historically favorable for Bitcoin. However, Glassnode’s on-chain and derivatives data shows that the immediate situation remains fragile. Recent buyers are under pressure, ETFs are bleeding, leverage is fading, and options positioning favors protection over conviction.
The Fed’s conviction in its decision will be crucial in determining the path forward for Bitcoin. If the Fed sees December as the start of a new easing cycle, it could extend the price further. However, if the Fed hesitates or makes a one-off rate cut while emphasizing inflation risk, macroeconomic stimulus could prove too weak to shift ETF flows or reverse risk appetite.
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