Traders on the Chicago Mercantile Exchange (CME) have increased short positions on Bitcoin futures ahead of the U.S. Federal Reserve’s upcoming interest rate decision, according to analysis by David Zimmerman of K33.
These moves indicate a cautious approach in the market, as the Federal Open Market Committee (FOMC) is expected to announce its decision on interest rates today at 2 p.m. ET.
Approaching rate cut and previous expectations
So far, the current market sentiment is pointing to a 50 basis point rate cut, a significant shift from usual monetary policy. It would be the first rate cut in four years, prompting market participants to brace for potential volatility.
Zimmerman noted that CME traders have significantly increased their short positions by 5,500 Bitcoin over the past two days, pushing futures premiums to their lowest levels in nine months. This trend indicates a shift in sentiment toward the downside on Bitcoin ahead of the FOMC decision.
Additionally, the CME futures market is reflecting concerns of increased volatility, similar to what happened after the recent US CPI release.
According to Zimmerman, the “downward bias” of futures premiums on CME, which are now below 5% for the first time since Jan. 15, indicates “hedging against potential risks” associated with the FOMC meeting.
The impact of interest rate cuts on Bitcoin
Zimmerman noted that interest rate cuts typically ease market conditions and may increase liquidity for riskier assets like Bitcoin, but fears of an economic slowdown remain.
The analyst explained that the expected 50 basis point rate cut has increased these concerns. Historical precedents show that such large cuts, as occurred in 2001 and 2007, have raised fears of an economic recession.
Now, with real interest rates at cyclical highs and inflation falling, the Fed might consider cutting quickly to reach a “neutral rate” — a rate that neither stimulates nor constrains the economy, Zimmerman suggested.
"Currently, the rate is expected to be cut by 125 basis points by the end of the year," the analyst added.
Currently, Bitcoin is trading at $59,415, down 2.7% over the past day. Despite the negative sentiment from CME traders, some analysts remain optimistic that the rate cut will be positive for Bitcoin.
For example, a popular cryptocurrency analyst known as “Moustache” on the X platform pointed to a notable bullish pattern on the Bitcoin chart, suggesting that the upcoming FOMC decision could help complete this pattern fully.
