As the U.S. Federal Reserve concludes its final meeting of the year, market attention zeroes in on anticipated rate cuts and their potential ripple effects, particularly on the notoriously volatile Bitcoin market. While conventional wisdom suggests that lower borrowing costs should stimulate the economy, past patterns reveal a more complex and often counter-intuitive relationship between Fed policy shifts and Bitcoin's price trajectory.
Rate Cuts and Bitcoin's Curious Reaction
Traders and investors widely anticipate a 25 basis point (bps) rate cut from the Federal Reserve, a move generally expected to boost economic activity. However, analysis of previous rate cuts in September and October paints a different picture for Bitcoin. Those instances were followed by significant BTC price drops of 8% and 12%, respectively. This seemingly paradoxical reaction is attributed to the market's tendency to "front-run" expectations. Analysts suggest that the bullish sentiment stemming from anticipated easing is often priced in before the official announcement, leading to a rally that has already culminated by the time the Federal Open Market Committee (FOMC) actually makes its decision. This front-running dynamic helps explain recent Bitcoin rallies, such as the 5.7% gain to $94,000 seen on Tuesday, ahead of the current Fed meeting.
Bitcoin's Technical Outlook and Future Scenarios
Despite recent short-term gains, Bitcoin's current technical structure suggests a cautious outlook. The price rally to $94,000 occurred within a well-established supply zone from mid-November, indicating strong resistance. While the On-Balance Volume (OBV) has shown a slow upward trend and a bullish structure break appeared on the 4-hour chart, sustained buying pressure is needed to overcome key resistance levels. Traders are presented with two primary scenarios. A bullish outcome could see a delayed reaction, possibly contingent on broader macroeconomic news, pushing Bitcoin beyond $96,000 and retesting the $94,000-$95,000 range as support. Conversely, the more likely bearish scenario points to a potential short-term dip, especially given the lack of a strong reaction to recent retests. A move below $90,600 and $89,900 could signal a deeper retracement, potentially driving prices as low as $88,000 or even $84,000 before a recovery might begin. Given the historical trend of post-rate cut dips and the broader long-term downtrend, traders are advised to maintain a bearish bias until the significant $96,000 resistance level is decisively breached.
