Key Points
- The Federal Reserve’s potential rate cut may boost Bitcoin’s appeal as a non-traditional investment.
- Bitcoin’s price and MVRV ratio could be driven higher by increased capital flow into the asset.
The Federal Reserve’s decision regarding interest rates in December is in alignment with a 96% likelihood of a 25 basis points (bps) rate cut, as per the CME’s Fed Watch.
This is a significant rise from the 89% probability recorded in the last 24 hours, and the 65% probability a month ago.
Rate Cut and Bitcoin
Considering the lower inflation rates outside housing, and total inflation just above target due to housing costs, a rate cut by the Fed could enhance the attractiveness of non-traditional investments such as Bitcoin (BTC).
Historically, cryptos have become more appealing with lower rates as they decrease the attraction of yield-bearing assets and enable increased liquidity and institutional borrowing at lesser costs.
Thus, a potential rate cut could signal a bullish outlook for Bitcoin, suggesting a possible continuation of its rally as capital flows into the asset increase.
Price Patterns and Liquidations
BTC’s 4-hour chart shows a consolidation in a symmetrical triangle pattern, a continuation pattern, which supports the rally’s continuation.
The price moved in increasingly smaller oscillations between the two converging trendlines indicating consolidation before a breakout. The breakout to the upside suggested a bullish continuation.
With the anticipated Fed rate cuts, which could be bearish for the dollar, Bitcoin could become more appealing when seeking higher returns, potentially driving BTC’s price further up.
Data from Coinglass showed a massive concentration of leveraged orders risking liquidation around the current price of BTC across different exchanges, including Binance.
If Bitcoin surpassed $105K, over $4.1 billion worth of BTC shorts could be set for liquidation, which could amplify the uptrend due to forced coverings by short sellers.
The MVRV ratio showed that Bitcoin’s market price was approximately 2.53 times higher than its realized value.
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. This could potentially drive both the price and MVRV ratio higher as more capital flows in, reflecting a bullish outlook without immediate signs of a peak.
