Traders at 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 movement 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 at 2:00 pm ET.
The impending rate cut and the consequences
So far, the current market sentiment points The Federal Reserve is heading for a 50 basis point rate cut, a significant shift from business-as-usual monetary policy. This would be the first such reduction in four years, prompting 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 their lowest level in nine months. This trend suggests a change towards bearish sentiment towards Bitcoin in anticipation of the FOMC decision.
Furthermore, the CME futures market reflects fears of increased volatility, similar to what occurred after the recent release of the US Consumer Price Index (CPI).
According to Zimmerman, the “downward-sloping futures premiums” on the 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 noted that while rate cuts generally alleviate market conditions and could increase liquidity for risk assets like Bitcoin, concerns remain about a possible economic recession.
The analyst noted that the planned 50 basis point cut has heightened these concerns. Historical precedents show that such a significant cut, such as in 2001 and 2007, has heightened fears of a recession.
Now, with real interest rates at cyclical highs and inflation cooling, the Federal Reserve could consider rapid cuts to achieve a “neutral rate” — a rate that neither stimulates nor constrains the economy, Zimmerman suggested.
The analyst added, noting: “Currently, 125 basis points of cuts are expected by the end of the year.”
Currently, Bitcoin is trading at $59,415at the time of the previous day’s 2.7% drop. Despite the bearish sentiment from CME traders, several analysts are optimistic that the federal rate cut will be positive for Bitcoin.
For example, a renowned crypto analyst known as Moustache on X recently pointed to a notable bullish pattern on the BTC chart, suggesting that the upcoming FOMC decision could help the pattern fully materialize.
#Bitcoin (W)
The most exciting FOMC meeting of the year and the chart $BTC looks like this.
Descending Broadening Wedge for 6 months. In the past, these patterns have ALWAYS been bullish.
The 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