- The CME’s Fed Watch noted a 96% probability for a 25bps cut next week.
- Price action, liquidation zones and MVRV all signal potential rally continuation.
Federal Reserve’s December interest rate decision coincided with a 96% probability of cutting rates by 25 basis points (bps) according to the CME’s Fed Watch.
This was an increase from 89% in the last 24 hours, as of press time, and 65% a month ago.
The probability of zero bps had only a 5% chance while that of greater than 25 bps was 1%, highlighting minimal expectations for these outcomes.
Given lower inflation rates outside housing and total inflation just above target due to housing costs, a Fed rate cut could boost non-traditional investments like Bitcoin [BTC].
Source: X
Historically, lower rates made cryptos more attractive by reducing the appeal of yield-bearing assets and enabling increased liquidity and institutional borrowing at lower costs.
Thus, a potential rate cut signaled a bullish outlook for Bitcoin, suggesting it could continue rallying as capital flows into the asset increase.
Price breaks from continuation pattern
Looking at BTC’s 4-hour chart, it consolidated in a symmetrical triangle pattern, a continuation pattern, supporting the continuation of the rally.
Bitcoin’s recent trend aligned with expectations that upcoming Fed rate cuts could fuel further rallies.
The price moved in increasingly smaller oscillations between the two converging trendlines indicating consolidation before a breakout. The breakout to the upside suggested a bullish continuation.
Source: Trading View
With the Fed expect rate cuts which is bearish for the dollar, Bitcoin could become more appealing when seeking higher returns, potentially driving BTC’s price further up if the rate cut materializes as anticipated.
Liquidations and BTC MVRV
Again, data from Coinglass showed massive concentration of leveraged orders risking liquidation around current price of BTC across different exchanges like Binance, OKX, and Bybit.
If Bitcoin surpassed $105K, over $4.1 billion worth of BTC shorts could be poised for liquidation, which could amplify the uptrend due to forced coverings by short sellers.
The cumulative long liquidation leverage for Bitcoin steadily increased, reflecting growing momentum.
Source: Coinglass
Further analysis of the MVRV ratio showed that value was at 2.53, suggesting that Bitcoin’s market price was approximately 2.53 times higher than its realized value.
This ratio saw fluctuations, peaking during periods of high market optimism, then normalizing or dipping during corrections.
Source: IntoTheBlock
Read Bitcoin’s [BTC] Price Prediction 2024-25
Notably, the MVRV ratio has not reached the extreme peaks observed in earlier cycles, indicating that Bitcoin may not be at a market peak.
If the Federal Reserve cuts interest rates, it could enhance appetite for Bitcoin. This could potentially drive both the price and MVRV ratio higher as more capital flows in. This reflects a bullish outlook without immediate signs of a peak.
