Bitcoin Attempts to Make $62,000 a New Support Level Amidst Fed’s Rate Cut
BTC/USD 4-hour chart. Source: TradingView
BTC Price Sees Three-Week Highs as Fed Implements Major Rate Cut
Amid the United States Federal Reserve’s unprecedented decision to cut interest rates by 0.5%, Bitcoin (BTC) took center stage by aiming to recapture the $62,000 support level on Sept. 19.
According to Cointelegraph Markets Pro and TradingView, Bitcoin exhibited increased price strength during the Asia trading session, reaching local highs of $62,600. This spike came on the heels of the Fed’s action, marking only the third instance in history where a rate-cutting cycle began with such a substantial reduction.
Short Positions Liquidated
Data from monitoring resource CoinGlass revealed that this bullish run led to the liquidation of short BTC positions across various exchange order books, amounting to $128 million in the 24 hours leading up to the time of writing.
"Now we need to reduce leverage or take profits," advised analysts on X, cautioning investors not to "get carried away."
BTC liquidation heatmap (screenshot). Source: CoinGlass
Bullish Forecast: Aiming for $64,000
Earlier predictions had suggested Bitcoin might reach $64,000 following a 0.5% rate cut; however, resistance at higher levels persisted. "Bitcoin slowly eating its way through the resistance level," noted trader Jelle on X.
“Above $62,500, things will look a lot more constructive, and stops above $65,000 won’t be safe anymore. Going to be an interesting end to September.”
US Dollar Shows Volatility
The US Dollar Index (DXY) saw significant fluctuations, initially rising before falling back to previous support levels. "Sitting at the edge of support. Breakdown can result in a sharp move towards 96," commented trader Aksel Kibar in his latest DXY analysis on X.
Market Impact of the Yen
For Arthur Hayes, former CEO of crypto exchange BitMEX, attention now shifts to the Bank of Japan’s rate decision expected on Sept. 20. The strength of the yen could potentially influence BTC price movements.
“Something Doesn’t Add Up”
Despite the Fed’s aggressive rate cuts, trading resource The Kobeissi Letter warned traders to remain cautious. Historical precedents indicate that such significant rate cuts often precede poor performance in US equities.
"In 2001, the market fell 31% after 2 years and in 2007 the market fell 26% after 2 years. These were major crises," an X thread pointed out.
Related: Markets see 0.5% Fed rate cut — 5 Things to know in Bitcoin this week
Contrast Between Fed’s Messaging and Actions
Kobeissi found a contradiction between the Fed’s optimistic messaging and the scale of its rate cut, questioning why the Fed would start with a 50-basis point reduction if the economy were strong.
"If the Fed has only started with 50 basis point rate cuts during crises, why start with 50 bps this time?"
Fed target rate probabilities. Source: CME Group
FedWatch Tool: Future Rate Cuts
Data from CME Group’s FedWatch Tool showed that the likelihood of another 0.5% cut was slimmer compared to a 0.25% reduction at the next Fed meeting scheduled for Nov. 7.
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.
Frequently Asked Questions (FAQs)
What is the significance of the Fed’s 0.5% rate cut for Bitcoin?
The Fed’s 0.5% rate cut is significant for Bitcoin as it typically increases market liquidity, driving investors towards riskier assets like cryptocurrencies. This rate cut was unusual due to its magnitude and the economic conditions under which it was implemented.
How does the US Dollar Index (DXY) affect BTC prices?
The US Dollar Index (DXY) measures the strength of the US dollar against a basket of other currencies. A weaker DXY generally leads to higher BTC prices as investors look for alternative stores of value.
What historical data suggests about significant rate cuts?
Historical data indicates that significant rate cuts often precede downturns in the stock market, such as a 31% drop in 2001 and a 26% decline in 2007. This pattern suggests potential risks for BTC and other risk assets in the wake of such cuts.
Concluding Thoughts
As Bitcoin seeks to establish $62,000 as new support, market participants remain cautious amidst the Fed’s aggressive rate cuts. With historical data and recent economic indicators creating a complex picture, the coming months will be pivotal in determining Bitcoin’s trajectory and broader market trends.