Fed Liquidity Could Propel Bitcoin Higher, Analysts Predict

Bitcoin's recent rise past $92,000 has sparked renewed optimism among investors who believe that the upcoming Federal Reserve meeting could trigger a significant market rally.

Key Takeaways:

Analysts suggest that an increase in liquidity from the Fed could drive Bitcoin sharply upward following its rise above $92,000.
The London Crypto Club anticipates a "dovish surprise" with rate cuts and balance sheet expansion acting as key drivers.
Markets are largely expecting a 25 basis points cut, which has historically led to increased demand for risk assets like Bitcoin.

Analysts from the London Crypto Club indicate that a potential liquidity boost from the Federal Reserve this Wednesday could act as a strong catalyst, possibly sending the largest cryptocurrency in the world soaring.

Fed Liquidity Move Could Send Bitcoin “Sharply Higher,” Analysts Say

Fed Likely to Deliver a "Dovish Surprise"

In a recent analysis, experts David Brickell and Chris Mills predict that the central bank will likely issue a “dovish surprise,” implying that policymakers are set to inject liquidity through an innovative bond-buying strategy rather than traditional quantitative easing.

“We are entering a phase of ongoing rate cuts paired with balance sheet expansion, as the Fed essentially turns on the money printers to manage the deficit,” they stated.

“This trend presents a substantial structural force heading into the new year.”

This forecast emerges during a critical time for cryptocurrency traders. Bitcoin’s rise above $92,000 follows two months of volatility that wiped out nearly all its gains for the year, leaving investors eager for clear macroeconomic signals that could shift market momentum.

The Federal Open Market Committee’s decisions will significantly shape this week’s economic landscape.

“Almost universally, policymakers are anticipated to cut rates by 25 basis points for the third time this year,” noted Ed Yardeni of Yardeni Research, reflecting common market expectations.

According to the CME FedWatch tool, there is an 86% probability of a 0.25% cut, while prediction market Polymarket shows even higher expectations at 94%.

Historically, lower interest rates have favored risk assets like Bitcoin, as they decrease the attractiveness of bonds and enhance capital movement toward higher-yielding or speculative markets.

Bitcoin at a Critical Support Level

Currently, Bitcoin is trading at a crucial level, which analysts believe will dictate if the market can maintain its broader upward trend or if it will retreat toward the lows seen in spring.

Crypto trader Daan Crypto Trades remarked that the 0.382 Fibonacci retracement zone is a critical support level that must be upheld by bulls, warning that a drop below could lead Bitcoin to fall back to around $76,000, close to the April lows.

“This is essentially the last significant support before we risk dropping down to the April lows again, which would disrupt the overall market structure,” he explained.

Meanwhile, an important on-chain metric referred to as “liveliness” is starting to rise again, even though Bitcoin's price movements remain muted.

Analysts interpret this divergence as a sign of renewed demand, noting that dormant coins are moving at rates not seen in years, indicating that long-term holders may be re-entering the market.

Just last week, Bitfinex mentioned signs of “seller exhaustion” in the market following a wave of heavy deleveraging and panic selling by short-term holders.