Bitcoin Set for Rebound as December Fed Cut Odds Increase: Analyst

Bitcoin Set for Rebound as December Fed Cut Odds Increase: Analyst

Bitcoin traders showed a notable increase in optimism on Friday following a significant rise in the likelihood of a rate cut by the U.S. Federal Reserve this December. This shift, which nearly doubled in just 24 hours, has brought fresh hope to a market that has been experiencing a decline for several weeks.

Key Takeaways:

The chances of a Fed rate cut surged from 39% to 69%, energizing Bitcoin traders.
Analysts propose that a move from tightening to easing could lead to a major rebound for Bitcoin (BTC).
Caution is advised as some experts believe the market might be overstating the implications of one dovish speech.

The rise in expectations has already generated speculation that such a policy change might help stabilize Bitcoin after its recent drop.

Bitcoin is currently trading around $85,071, which represents a decline of over 10% in the past week, as reported by CoinMarketCap.

Fed Cut Odds Rise After Dovish Statements From NY Fed President

The catalyst for this change came from the CME FedWatch Tool, which indicated the odds of a rate cut in December soaring to 69.40% on Friday, up from 39.10% the previous day.

Analysts attributed this jump to comments made by John Williams, the President of the New York Fed, who suggested that the central bank could lower rates “in the near term” without compromising its efforts to control inflation. This language was interpreted as quite dovish by the markets.

Bloomberg analyst Joe Weisenthal noted that Williams’ remarks were a major factor in the significant increase in cut expectations, with sentiment among Bitcoin enthusiasts on social media quickly turning positive.

Crypto analyst Moritz questioned whether the increase in rate cut odds would finally allow Bitcoin to “find a bottom.” Some analysts were even more bullish, with Mister Crypto mentioning, “Usually this would be bullish,” as traders pondered whether the Fed’s stance could reignite demand for riskier assets.

Rate cuts generally lead investors to gravitate towards assets like Bitcoin, as the yields on traditional investments decrease. Several analysts believe the current macroeconomic environment favors a turnaround.

Crypto commentator Jesse Eckel described the situation as “unfathomably bullish,” pointing to the shift from a tightening phase to an easing one in the economy. “I don’t know why we keep going lower,” he remarked. Analyst Curb went further by predicting that cryptocurrency could “explode in a massive rally.”

However, not all are convinced. Veteran economist Mohamed El-Erian advised caution, warning traders not to get “carried away” as markets may be reading too much into a single speech.

Coinbase Suggests Rate-Cut Bets Are Mispriced

In a note published on Friday, Coinbase Institutional expressed that futures markets might be undervaluing the probability of a rate cut.

“We believe the odds for a rate cut are actually mispriced,” the firm stated, referencing new tariff research, private-sector information, and real-time inflation indicators.

Coinbase explained that traders have shifted their expectations from anticipating a 25 basis point decrease to predicting that the Fed would keep rates steady due to earlier inflation reports raising concerns.

However, the firm noted that tariff effects often tend to reduce inflation and increase unemployment temporarily, which can dampen demand and support the case for rate cuts.

According to XWIN Research Japan, if the Federal Reserve decides to keep interest rates unchanged at the upcoming FOMC meeting, Bitcoin is likely to stay trapped between $60,000 and $80,000 until the end of December.

Analysts indicate that a cautious Fed, grappling with inflation around 3%, is expected to maintain tight conditions, which have historically had a negative impact on equities and cryptocurrency. If there is no rate cut, XWIN predicts the market will remain stable, with subdued risk appetite until there is greater macro clarity.