According to Digital Asset Research 10x Research: Bitcoin experienced a brief rally following the U.S. inflation announcement last week, only to sell off shortly thereafter. This occurred despite the probability of a September rate cut exceeding 90%. Traders are now contemplating buying Bitcoin ahead of the anticipated rate cuts.

Understanding Financial Market Dynamics

To succeed in financial markets, one must often bet against consensus and be correct. Most traders anticipated lower inflation, leading to a fleeting post-CPI rally. Key trading concepts involve recognizing shifts from bad to less bad conditions, which can lead to significant gains, and from less good to worse conditions, leading to substantial losses.

 



 

Current Market Indicators

Currently, selling pressure from the German government is easing, and Bitcoin appears technically oversold. Exchange-traded funds (ETFs) are buying the dip, and the Federal Reserve is expected to cut interest rates soon, providing the liquidity support that many anticipate.

Should You Buy Bitcoin Before the Rate Cuts?

Lower interest rates typically stimulate the economy and provide liquidity to financial markets. However, it's crucial to understand the Fed's motivations behind rate cuts, as the outcome could significantly impact Bitcoin prices.

Historical Context of Fed Rate Changes

2017-2018 Bear Market: When the Fed raised rates to 1.50% in December 2017, Bitcoin entered a bear market until December 2018 when rates peaked at 2.50%. Bitcoin then grew +169% during the Fed's pause until July 2019.

2021-2023 Bear Market: Similarly, Bitcoin fell into a bear market with the Fed's rate hike cycle starting in March 2022. After the last rate hike in July 2023, Bitcoin rallied +95% as the Fed paused.

Potential Outcomes of September Rate Cuts

In 2019, following a seven-month pause, the Fed cut interest rates, initially causing Bitcoin to rally +19%. However, subsequent cuts due to economic uncertainties led to declines. If the Fed cuts rates due to inflation concerns in September 2024, it could be short-term bullish for Bitcoin. Conversely, Bitcoin might face significant selling pressure if growth concerns drive the cut.

Current Economic Indicators

U.S. GDP: Declined from +5% to +1.4%.

ISM Manufacturing PMI: In contraction since November 2022.

Unemployment Rate: Highest since December 2021, above 4.0%.

These indicators suggest a risk that the Fed may cut rates due to weak growth, not just low inflation, impacting Bitcoin’s performance.

Historically, August and September are bearish months for Bitcoin. The ongoing Mt. Gox sell-offs and Bitcoin miners liquidating inventory to fund operations could add to selling pressure.

Market Outlook

Bitcoin has surged close to $60,000, as predicted, but the market remains vulnerable to a pullback, potentially testing the $50,000 level within the next few weeks. Given the current downtrend, a cautious to bearish stance is recommended.

As the Fed’s September rate cut approaches, understanding the underlying reasons for the cut is crucial for Bitcoin traders. The potential impact on Bitcoin prices hinges on whether the cut addresses inflation or growth concerns. Historical trends, current economic indicators, and market dynamics should guide investment decisions in the lead-up to the rate cut.