Traders on the Chicago Mercantile Exchange (CME) have been increasing their short positions in bitcoin futures ahead of the US Federal Reserve's interest rate decision, according to K33 analyst David Zimmerman.
This move signals 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 pm ET.
The impending rate cut and the consequences
So far, the current market sentiment bitcoin-short-positions-ahead-of-anticipated-fed-rate-decision-volatility-analyst-says” target=”_blank”>needles The U.S. central bank is moving toward a 50-basis-point rate cut, a significant departure from usual monetary policy. It would be the first rate reduction in four years, forcing market participants to brace for potential volatility.
Zimmerman noted that CME traders have noticeably 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 decision.
In addition, the CME futures market is reflecting 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 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 ease market conditions and can improve liquidity for risk assets like bitcoin, concerns about a potential economic slowdown remain.
The analyst said the planned 50 basis point cut had amplified these concerns. Historical precedents show that such a significant reduction, such as those in 2001 and 2007, heightened fears of a recession.
With real interest rates now at cyclical highs and inflation cooling, the Fed could consider rapid cuts to reach a “neutral rate” — one that neither stimulates nor restricts the economy, Zimmerman suggested.
The analyst added: “Rate cuts of 125 basis points are currently expected by the end of the year.”
bitcoin is currently trading at $59,415, down 2.7% over the past day. Despite the bearish sentiment of CME traders, several analysts are optimistic that the Fed rate cut will be positive for bitcoin.
For example, renowned cryptocurrency analyst known as Moustache on x has… twitter.com/el_crypto_prof/status/1836392005628297549?ref_src=twsrc%5Etfw” target=”_blank”>pointed to a notable bullish pattern on the btc chart, suggesting that the upcoming FOMC decision could help the pattern fully develop.
<blockquote class="twitter-tweet”>
twitter.com/hashtag/bitcoin?src=hash&ref_src=twsrc%5Etfw” target=”_blank”>#bitcoin (My)
The most exciting FOMC meeting of the year and the chart of twitter.com/search?q=%24BTC&src=ctag&ref_src=twsrc%5Etfw” target=”_blank”>$btc It 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. image.twitter.com/zbHNIM5vfc
— 𝕄𝕠𝕦𝕤𝕥𝕒𝕔ⓗ𝕖 (@el_crypto_prof) twitter.com/el_crypto_prof/status/1836392005628297549?ref_src=twsrc%5Etfw” target=”_blank”>September 18, 2024
Featured image created with DALL-E, chart by TradingView
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