Bitcoin Gains 5% to $61K Ahead of Fed, but Order Books Suggest Rally Could Be Capped

Bitcoin, the most significant and long-standing cryptocurrency, propelled the digital assets market upward. It reached its peak price in three weeks at $61,330, but later relinquished some of those gains. Currently, it’s trading just under $61,000, representing an increase of over 5% within the last 24 hours.

Regardless of the recent surge, Bitcoin has been trading within a narrow band and appears not to burst its boundaries before the upcoming FOMC meeting on Wednesday.

Moving forward, there’s expected to be significant attention on aligning strategies for the forthcoming Federal Reserve event, as pointed out by Joel Kruger, a market strategist at LMAX Group, in his market update from Tuesday.

There remains some ambiguity as to whether the Federal Reserve will go for a smaller 0.25 percentage point reduction or a bigger 0.50 percentage point adjustment. As we approach the central bank’s announcement, investors have given a 63% likelihood to the larger cut, based on data from the CME FedWatch Tool.

As a researcher, I am eagerly anticipating the potential for a larger, more accommodating interest rate reduction by the Federal Reserve during their meeting tomorrow. This anticipated cut has caused yield differentials to shift unfavorably for the U.S. dollar according to Kruger’s analysis.

As a crypto investor, I’ve observed that the situation isn’t always as simple as it seems. A significant reduction in interest rates might trigger a panic among risk asset holders due to fears of increased economic instability. This is something K33 Research analysts have pointed out, comparing such cuts to those during the 2001 and 2007 recessions, which often indicated heightened risks of a U.S. recession.

According to K33 analysts, if inflation decreases significantly and joblessness increases, the Federal Reserve might decide to make quick reductions in interest rates to achieve a neutral level.