18 September 2024
Traders on the Chicago Mercantile Exchange (CME) have been increasing their short positions on Bitcoin futures ahead of the US Federal Reserve’s interest rate decision, according to K33 analyst David Zimmerman.
This move indicates a cautious approach in the market, as the Federal Open Market Committee (FOMC) is expected to announce its latest interest rate decision later today by 2 pm ET
The Looming Rate Cut And The Beforemath
So far, current market sentiment points towards a 50 basis-point rate cut, a significant change from the usual monetary policy. This would be the first-rate reduction in four years, causing market participants to brace for potential volatility.
Zimmerman noted that CME traders have notably increased their short positions by 5,500 BTC over the past two days, pushing futures premiums to a nine-month low. This trend suggests a shift towards bearish sentiment on Bitcoin in anticipation of the FOMC’s decision.
Additionally, the CME futures market is reflecting fears of heightened volatility, similar to what occurred following the recent US Consumer Price Index (CPI) release.
According to Zimmerman, the “downward sloping futures premiums” on CME, now below 5% for the first time since January 15, indicate “hedging against potential risks” associated with the FOMC meeting.
Implications Of Interest Rate Cuts On Bitcoin
Zimmerman pointed out that although rate cuts usually relief market conditions and may enhance liquidity for risk assets like Bitcoin, worries about a possible economic downturn remain.
The analyst mentioned that the anticipated 50 basis-point cut has amplified these concerns. Historical precedents show that such a significant reduction, like those in 2001 and 2007, heightened recession fears.
Currently, with real interest rates at their cyclical highs and inflation cooling, the Federal Reserve may consider swift cuts to reach a “neutral rate”—a rate that neither stimulates nor restricts the economy, Zimmerman suggested.
The analyst added, noting: “Currently, 125 basis points in cuts are expected by the end of the year.”
Currently, Bitcoin trades at $59,415, at the time of writing down by 2.7% in the past day. Despite the bearish sentiment from CME traders, several analysts are optimistic that the fed rate cut will be positive for Bitcoin.
For instance, renowned crypto analyst known as Moustache on X has recently pointed to a notable bullish pattern on BTC chart, suggesting that the upcoming FOMC decision could assist the pattern in playing out completely.
#Bitcoin (W)
Most exciting FOMC meeting of the year and the chart of $BTC looks like this.
Descending broadening wedge for 6 months.
In the past, these patterns have ALWAYS been bullish.
RSI is a leading indicator and has already broken out of the downtrend. pic.twitter.com/zbHNIM5vfc
— 𝕄𝕠𝕦𝕤𝕥𝕒𝕔ⓗ𝕖 (@el_crypto_prof) September 18, 2024
Featured image created with DALL-E, Chart from TradingView