Chicago Mercantile Exchange (CME) Bitcoin futures traders increased their short positions ahead of today’s US Federal Reserve (Fed) interest rate decision.
This signals a cautious tone in the market. The Federal Open Market Committee (FOMC) is expected to cut interest rates by 50 basis points for the first time in four years at its meeting today.
K33 analyst David Zimmerman noted that investors trading on CME opened short positions worth 5,500 Bitcoin in the last two days. “CME active market participants increased their positions by 5,500 Bitcoin in the last two days. Premiums have fallen to their lowest level in 9 months, indicating a shift to Bitcoin short positions,” Zimmerman said.
The CME Bitcoin futures market is showing that the market is fearful of potential risks, such as the high volatility seen following the latest U.S. Consumer Price Index (CPI) data. “The fact that futures premiums on CME have fallen below 5% could be an indication of a strategy to hedge against FOMC risk,” Zimmerman said.
He also noted that CME futures premiums have fallen while perpetual futures funding rates have risen, which he said is “generally a negative signal in the short term.”
Market jittery ahead of FOMC meeting
Zimmerman said that while rate cuts have the potential to boost liquidity for riskier assets, investors remain concerned about a possible economic slowdown. However, the central bank is expected to cut rates to a level where the cost of money is neither stimulating nor restraining.
According to analyst K33, a 50 basis point rate cut could increase recession concerns, as it did in 2001 and 2007. However, with inflation falling and unemployment rising, it is thought that the Fed could quickly cut interest rates. A total of 125 basis point cuts are expected by the end of the year.
Stay tuned for new information.
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