Bitcoin recently experienced a notable dip, shedding over 4 percent of its value and approaching $111,000, even as U.S. equities scaled new peaks. This intriguing divergence ahead of a crucial Federal Reserve decision highlights that crypto's recent movements are more influenced by its unique market microstructure, positioning, and flows rather than a broad macroeconomic risk-off sentiment.
Key Drivers Behind Bitcoin's Decline
The recent downturn in Bitcoin's price can be attributed to several intertwined factors. A significant buildup of open interest in perpetuals and futures markets created heightened sensitivity to price movements. Consequently, even a modest wave of long liquidations, particularly in thin liquidity conditions, was sufficient to push prices lower. Adding to this pressure, the once-record-setting spot ETF inflows have noticeably cooled on a daily basis, removing a critical marginal bid from the market as investors await clearer policy guidance. Furthermore, the market continues to digest an "early October tariff shock," which reset leverage and reduced market depth, making prices more susceptible to smaller imbalances than before.
Divergence from Equities and Future Outlook
While mega-cap technology strength, exemplified by companies like Nvidia, propelled the S&P 500 to new highs, this did not translate into a broader "risk-on" impulse for the crypto market. Instead, Bitcoin and Ethereum traded on their own internal dynamics. Looking ahead, the market is poised for the Federal Reserve's policy decision. The base expectation is a 25 basis point rate cut, which could lead to a post-event re-beta in crypto if funding normalizes and ETF inflows rebound. However, a hawkish-leaning cut with cautious guidance or an unexpected macro headline could reignite liquidations, potentially pushing Bitcoin towards the $108,000-$110,000 support level. Traders are closely monitoring whether Bitcoin can hold above $110,000, if open interest stabilizes, and if U.S. spot ETFs record positive net flows in the immediate sessions following the Fed's announcement.
