Bitcoin Traders Preserve Capital Ahead of Fed Interest Rate Decision

• Bitcoin is hovering around the $60,000 mark ahead of a key interest rate decision by the U.S. Federal Reserve.
• Federal funds rate futures data predicts a 63% chance that the Federal Reserve will cut interest rates by 50 basis points.
• On-chain data supports the bullish outlook as new BTC whales accumulate and older whales remain stationary.

Bitcoin (BTC) traded slightly lower above $59,000 on Wednesday as the crypto market braced for the upcoming interest rate decision by the U.S. Federal Reserve (Fed), which is expected to cut interest rates for the first time in more than four years. While a rate cut is widely expected by traders, the meeting is shrouded in uncertainty as to how big the cut will be, a key factor that could affect BTC price and the crypto market as a whole.

Bitcoin Awaits Fed Decision

Bitcoin rose 3.6% to close above $60,000 on Tuesday, the day before the Federal Reserve's interest rate decision. BTC rose 5%, while the stock market gave mixed signals, hovering near the previous day's highs, and gold fell more than 0.5% on the day.

The main question surrounding the Federal Reserve's (Fed) decision is whether the US central bank will opt for a standard 25 basis points (bps) rate cut or a larger cut of 50 bps.

CME's Fed watch tool, which tracks the probability of a change in Fed interest rates as inferred from futures prices for the federal funds rate, suggests a 63% chance of a 50 basis point cut, while the remaining 37% suggests a 25 basis point cut. The results could move the cryptocurrency market.

US interest rates are currently in a target range between 5.25% and 5.5%. Economists, investors and analysts are constantly trying to predict how this level will change in the near future, as this is key to determining the fate of the economy and, therefore, the valuation of currencies, stocks, commodities and cryptocurrencies.

FXStreet Senior Analyst Yohay Elam outlines four possible scenarios that could play out today and their impact on markets, depending on Federal Reserve Chairman Jerome Powell's decisions and messaging.

1) Big cuts, confident message: Crypto is bullish. In this scenario, Powell gives the market what it wants without causing panic. High probability.

2) Small Rate Cut, Confident Message: Expect sharp volatility in crypto markets, with initial declines followed by a slight recovery. A 25bps rate cut would be disappointing and trigger a knee-jerk reaction. However, confidence in the economy and opening the door to a quicker rate cut later could trigger a reversal. Medium to high probability.

3) Big Rate Cut, Message of Concern: Cryptocurrencies are likely to experience some sharp volatility, with initial gains and then declines. A 50bps rate cut is good news, but if it comes for the wrong reasons, that will change everything. Recession fears will worsen the market mood. Medium likelihood.

4) Small Rate Cuts, Message of Concern: Crypto Falls. In this scenario, the Fed initiates small rate cuts but is concerned about the economy. The crypto market would take a hit, but could then recover on the expectation of lower interest rates. Unlikely.

Rate cut probability chart

Data from U.S. Bitcoin spot exchange-traded funds (ETFs) recorded inflows of $186.8 million for the second consecutive day on Tuesday. Studying ETF inflow data is useful for observing institutional investors' sentiment toward Bitcoin. If such inflows continue, it will increase demand for Bitcoin, leading to price increases. The total Bitcoin reserves held by 11 U.S. spot Bitcoin ETFs increased to $49.95 billion in assets under management (AUM) after a small decline in early September.

Bitcoin Spot ETF Net Inflow Chart

Bitcoin ETF AUM Chart

Looking at data from CrytpoQuant, the outlook for Bitcoin is bullish. The chart below shows the BTC balances of new and old whales.

New whales (orange line) are addresses with a current balance of over 1,000 BTC and an average UTXO age of less than 155 days. Old whales (yellow) are addresses with a current balance of over 1,000 BTC and an average UTXO age of more than 155 days.

From early September to today, the new whale's BTC balance has increased from 1.52 million to 1.7 million, while the old whale's balance has remained unchanged over the same period. This suggests that while new whales are accumulating BTC, their old wallets are still holding onto it.

Bitcoin new and old whale chart

Technical analysis: BTC breaks out of the descending trend line

Bitcoin prices rose 3.6% on Tuesday, breaking above a descending trendline (drawn from multiple highs from late July) but failed to close above this trendline last week. However, they faced resistance from the 100-day exponential moving average (EMA) at $60,718 on Wednesday before turning around and trading around $59,840.

If BTC breaks and closes below the 100-day EMA at $60,718, it could first rise to a retest of the 61.8% Fib retracement level near $62,000. A close above $62,000 could lead to an additional 5.5% rally and a retest of the daily resistance level at $65,379.

The Moving Average Convergence Divergence (MACD) indicator further supports Bitcoin’s rise, showing a bullish crossover on the daily chart. The MACD line (blue line) has risen above the signal line (yellow line), giving a buy signal. The green histogram bars are showing a rise above the neutral line zero, also suggesting that Bitcoin price may move higher.

Meanwhile, the Relative Strength Index (RSI) is little changed and remains very close to the neutral level, indicating a lack of momentum.

BTC/USDT daily chart

However, the bullish thesis will be invalidated if BTC closes below the daily support level at $56,022 and could fall by 3.6% to retest the psychologically significant level of $54,000.