Bitcoin Soars on US Rate Cut, But Will It Break Through the $63.9k Psychological Barrier
Bitcoin (BTC) is moving around $64,000 after giving back some of the gains it made following the recent big cut (50bp cut in interest rates, 0.5% point at once) by the US Federal Reserve.
Market experts predicted that if Bitcoin steadily breaks through the $63,900 resistance line, it is likely to continue its upward trend, but if it falls below the $62,500 line, it is likely to turn bearish.
As of 10:08 am on the 25th, Bitcoin is currently being traded at 85,284,000 won (64,166 USD based on Binance USDT market), up 0.06% from the previous day, on Upbit’s KRW market. At the same time, the kimchi premium (price difference between overseas and domestic exchanges) has been showing a recent downward trend, recording 0.07%.
Global stock markets welcome US interest rate ‘big cut’… “Volatility may increase with PCE announcements this week”
The US Federal Reserve effectively ended its tight monetary policy by lowering its benchmark interest rate for the first time in four and a half years on the 18th. The Fed lowered its year-end benchmark interest rate forecast from 5.1% to 4.4%, suggesting that it would further lower interest rates within the year. Global stock markets responded with anticipation and joy over the interest rate cut. Typically, when the benchmark interest rate is lowered, expectations that money will flow in increase, leading to an increase in risky assets such as Bitcoin and stock markets.
The global financial market is expected to see increased volatility this week. This week, Fed Chairman Jerome Powell and other Fed members are scheduled to make public statements one after another. As there are opinions that there are significant differences of opinion within the Fed regarding monetary policy, the market is paying attention to what they say. In particular, market participants are focusing their attention on the US August core personal consumption expenditures (PCE) index, which will be released on the 27th.
Core PCE is a price index that excludes volatile food and energy, and is considered a key indicator that the Fed uses before considering policies such as determining the base interest rate.
The American economic media outlet CNBC reported on the 23rd that “indicators such as the PCE and producer price index (PMI) to be released this week will allow us to see whether the Fed’s recent interest rate cut was based on actual economic data or was simply an action to ease concerns about an economic downturn.” Bloomberg also said, “There are several public statements scheduled by Fed members this week. The Fed will be evaluated on its interest rate cut.”
If economic indicators and comments from various figures confirm that the interest rate cut was a defensive measure due to concerns about an economic downturn, it could be negative news for the stock market.
With two regular FOMC meetings remaining this year in November and December, attention is focused on the speed and scale of the rate cut. According to the Chicago Mercantile Exchange (CME) FedWatch at 10:00 AM on the 25th, the market is expecting a 100% chance that the Fed will cut rates at the FOMC meeting in November. FedWatch predicts a 38.8% chance that the Fed will cut rates by 0.25%p and a 61.2% chance that it will cut rates by 0.5%p.
“Bitcoin’s recent rebound is influenced by the futures market… Beware of increased short-term volatility”
Bitcoin spot ETFs recorded net inflows last week. According to Farside Investors, a global stock market and virtual asset investment firm, 11 Bitcoin spot ETFs listed in the U.S. saw a net inflow of 6,578.89 BTC (approximately $397.1 million) last week.
On the 23rd, virtual asset management company CoinShares explained, “There has been a net inflow of funds into digital asset investment products (such as Bitcoin ETFs) for the second week in a row,” and “This is likely to have been driven by the Fed’s aggressive interest rate cuts.” The recent news of BlackRock’s approval to launch a Bitcoin options product and the news of MicroStrategy, the company with the largest Bitcoin holdings in the world, purchasing an additional 7,420 Bitcoins are also interpreted as having improved investment sentiment.
There is also an observation that the recent rise in Bitcoin is largely influenced by the futures market rather than the spot market. Bitfinex, a global virtual asset exchange, analyzed in a research report on the 24th, “It is concerning that the increased open interest (OI) of Bitcoin last week (after the Big Cut) is overwhelming the price increase,” and “This suggests that most of Bitcoin’s increase last week occurred in the futures market rather than the spot market.” The explanation is that the recent rise is based on leverage contracts, so volatility may increase in the future.
Open interest refers to the number of contracts in the derivatives market that traders have not liquidated. Generally, the more open interest there is, the higher the volatility of the coin price is likely to be.
Along with this, there is also analysis that Bitcoin has not been able to escape the ‘recession’ where both supply and demand are decreasing. On-chain analysis platform Glassnode analyzed in a recent research report that “Bitcoin has not had significant inflows and outflows over the past six months,” and “Bitcoin demand has slowed and the amount available for trading (on major exchanges) has also decreased noticeably. The realized market capitalization has also not changed much over the past two months.”
Bitcoin’s realized market capitalization is the amount of active money, excluding Satoshi Nakamoto, whales who don’t trade, lost coins, long-term investors, etc.
The report continued, “Recently, the supply of stablecoins (such as Tether) has been on the rise. This is creating tension (in terms of demand) in the market.” It added, “As Bitcoin has not seen much price fluctuation in the past six months, expectations for greater volatility are growing.”
Earlier, on the 22nd, Tether (USDT) broke the record for the largest market capitalization ever, surpassing $119.1 billion (approximately 159 trillion won). Normally, an increase in the issuance and holding of stablecoins can act as a buying pressure on the market, and is considered a bullish signal. In the opposite case, it can be interpreted as a decrease in demand for virtual assets.
“Bitcoin, if it fails to break through the medium-term resistance level of $63,900, a bearish turn is expected”
Market experts have predicted that Bitcoin is likely to turn bearish if it fails to break through the resistance level around $63,900. Meanwhile, on-chain analysts have analyzed that there has been a recent influx of new funds from ‘big hand’ whale investors, while existing whale investors are maintaining a holding mentality.
Bitcoin, which recently rebounded, has hit a short-term high and is undergoing a short-term correction. Ayush Jindal, a researcher at NewsBTC, analyzed, “Bitcoin tested the resistance level near $64,800 and gave back some of its gains,” and “If Bitcoin breaks the key resistance level between $63,800 and $64,200, it could show further uptrend.” He added that if Bitcoin breaks below the $62,450 support level, downward pressure could increase.
In particular, there is analysis that the $63,900 level is acting as a psychological resistance line for investors. Alex Kupchikevich, a market analyst at FXPro, analyzed, “Recently, Bitcoin has been selling off hard near the high ($65,650) last month and has been rising more cautiously than the stock market since then,” but “Bitcoin is continuing its fight to break through the psychological resistance line of $63,894.”
The analyst added, “If Bitcoin breaks through that resistance, it could open the way for additional upside to $66,000. If it breaks through $68,000, the medium-term downtrend will reverse.” If Bitcoin rises by more than 3% from its current price, it is likely to overcome the medium-term downtrend that has continued since March.
Meanwhile, some analyses say that Bitcoin is likely to form a box range for the time being. Rakesh Upadhyayeh, a researcher at Cointelegraph, said, “Short-term investors are taking profits near the $64,000 level, and this movement has temporarily caused the Bitcoin price to fall below $63,000.” He predicted, “Bitcoin is likely to consolidate (by forming a box range) before breaking through the $65,000 resistance line.”
“If Bitcoin breaks the $62,663 support and falls, it is likely to fall further to $61,200,” Upadhyay added. “If Bitcoin breaks that support as well, it could fall to $59,000 and $57,500.”
Kang Min-seung Blooming Beat Reporter minriver@bloomingbit.io