Bitcoin price has held steady above the important support level at $115,000 as traders waited for the closely-watched Federal Reserve interest rate decision and as inflows to its exchange-traded funds jumped. So, how will the upcoming Fed cuts impact BTC price and the crypto market?
Federal Reserve to cut interest rates on Wednesday
The main news this week is that the Federal Reserve will start its two-day meeting and deliver its interest rate decision on Wednesday.
This meeting comes at a time when most economists and analysts predict the first interest rate cut of the year. Polymarket odds of this cut have jumped to over 90%, while the CME Fed Monitor tool has the probability at 95%.
Interest rate cuts often boost risky assets like Bitcoin and the stock market as it pushes investors from the high-yielding bond market to stocks and bonds.
Recent data shows that money market funds, which benefit from high interest rates, now hold over $7.5 trillion. When interest rates fall, there is a possibility that some of these funds will move to the stock and crypto market.
There are signs that this rotation is happening, with SoSoValue data showing that investors are piling their funds into Bitcoin and Ethereum ETFs. All Bitcoin ETFs had over $260 million in inflows on Monday, with the overall trading volume jumping to over $3 billion.
These Bitcoin ETFs have added over $2.68 billion in assets in the six consecutive days, bringing the cumulative inflows since their inception to over $57 billion. These funds now hold $152 billion in assets, with BlackRock’s IBIT having over $87 billion.
Spot Ethereum ETFs have also added substantial assets in the past few months. They added $359 million in inflows on Monday and over $1.09 billion in the last five days. Their cumulative inflows jumped to $13.7 billion, bringing the total assets to almost $30 billion.
Historically, Bitcoin price does well when the Fed is cutting interest rates. For example, it jumped to a record high during the pandemic as the bank brought rates to zero. Most recently, the coin has jumped to an all-time high after the bank delivered two cuts in 2024.
BTC price faces potential risks ahead
Still, Bitcoin price faces potential risks ahead. First, the upcoming Fed cut could become a sell-the-news event as some analysts have warned. This is a situation where an asset rises before a major news event and then slips when it happens.
The other risk, according to JPMorgan’s David Kelly, is that the stock market, dollar, and the bond market could drop if the market perceives that it was made out of political pressure. He said:
“To the extent that the Fed’s decision this week is seen as a capitulation to political pressure, a new layer of risk is being added to U.S. financial markets and the dollar.”
There is also a risk that the upcoming interest rate cut has already been priced in, which will drive Bitcoin lower as investors look for the next catalyst.
Bitcoin price technical analysis points to a pullback
The other major risk is that Bitcoin price has formed a rising wedge chart pattern on the weekly chart. This pattern is made up of two ascending and converging trendlines, with a bearish breakdown happening when they near their confluence.
The coin has also formed a bearish divergence pattern as the MACD and the Relative Strength Index (RSI) have continued falling in the past few weeks.
Therefore, the most likely Bitcoin price forecast is bearish, with the potential target being at the psychological level at $100,000. However, in the long term, the coin will likely rebound and hit an all-time high in the fourth quarter.
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