• Bitcoin trades closely around $60,000 as anticipation builds for a pivotal interest rate decision from the US Federal Reserve.
• Market analysis indicates a 63% probability that the Federal Reserve may implement a 50 basis point reduction in rates.
• Recent on-chain data reinforces a bullish sentiment, highlighting the increase of BTC accumulation by new whales while existing whales maintain their holdings.

Bitcoin (BTC) has seen a slight retracement, currently trading above the $59,000 mark on Wednesday. This fluctuation occurs as cryptocurrency markets remain poised for the US Federal Reserve’s imminent interest rate decision, which is expected to mark the first reduction in more than four years. Although traders are generally predicting a rate cut, there exists a degree of uncertainty regarding the magnitude of this decrease, a significant factor that could impact BTC prices and the broader crypto landscape significantly.

Bitcoin Anticipates Fed’s Verdict

On Tuesday, Bitcoin enjoyed a notable rise of 3.6%, closing above the coveted $60,000 threshold just a day before the Federal Reserve gathers to deliberate on interest rates. While BTC’s gain was impressive, stock markets presented a mixed bag, fluctuating near historical highs, with Gold seeing a decline exceeding 0.5% on the same day. The central question remains whether the Fed will choose a conventional 25 basis point (bps) rate cut or implement a more pronounced 50 bps reduction.

The CME’s Fed watch tool, which evaluates the likelihood of rate changes based on Fed Funds futures prices, currently points to a 63% chance of a substantial 50 basis point cut, with the remaining 37% suggesting a mere 25 bps reduction. The outcome of this meeting is expected to exert a considerable influence on the cryptocurrency markets.

Currently, US interest rates are positioned within a target range between 5.25% and 5.5%. Economists, investors, and analysts remain actively engaged in forecasting alterations to this level, which plays a crucial role in determining the economy’s fate and hence the valuation of various assets, including currencies, equities, commodities, and cryptocurrencies.

FXStreet Senior Analyst Yohay Elam outlines four potential scenarios regarding the Fed’s decision today, along with their anticipated repercussions for the markets:

1) Big cut, confident message: This scenario presents a bullish outlook for crypto. Powell responds to market expectations without inducing panic. A high probability scenario.

2) Small cut, confident message: Here, a volatile market response is likely, leading to an initial drop in crypto values followed by a slight recovery. A 25-bps adjustment may disappoint investors, triggering a knee-jerk reaction. However, any indication of confidence in the economy coupled with a willingness to enact quicker cuts later could reverse the initial downturn. This scenario carries a medium-high probability.

3) Big cut, concerned message: Similar to the previous scenario, initial gains in crypto might later retreat. While a 50-bps cut is favorable generally, if it arises from economic distress, the market sentiment could change drastically. This bears a medium probability.

4) Small cut, concerned message: In this case, crypto markets are expected to dip. The Fed may initiate a small adjustment but exhibit anxiety regarding the economy’s state. Although the markets could suffer under this scenario, they might bounce back with optimism surrounding future rate cuts. This scenario is perceived as a low probability.

Probability chart for rate cut

On the institutional front, Bitcoin Spot Exchange Traded Funds (ETF) recorded significant inflows totaling $186.80 million for the second consecutive day on Tuesday. Analyzing ETF flow data serves as a valuable tool for gauging institutional investors’ sentiment towards Bitcoin. Persistent inflows of this nature could subsequently heighten demand for Bitcoin, driving prices upward. The aggregate Bitcoin reserves managed by the 11 US spot Bitcoin ETFs have now escalated to $49.95 billion in Assets Under Management (AUM), following a minor decline earlier in September.

Bitcoin Spot ETF Net Inflow chart

Bitcoin ETF AUM chart

According to data from CryptoQuant, the outlook for Bitcoin remains bullish. The accompanying chart illustrates the BTC balances held by both new and old whales. New whales (depicted by the orange line) are identified as addresses holding over 1,000 BTC with an average UTXO age of fewer than 155 days. Conversely, old whales (indicated by the yellow line) represent addresses with over 1,000 BTC, but with UTXO ages of 155 days or more.

Since early September, the balance of new whale addresses has increased from 1.52 million BTC to 1.70 million BTC, while the balances of old whale addresses have shown no change over the same period. This trend strongly suggests that new market participants are actively accumulating Bitcoin while established holders are opting to retain their positions.

Bitcoin new whales and old whales chart

Technical Analysis: BTC Surges Past The Descending Trendline

Bitcoin’s price registered a 3.6% increase on Tuesday, managing to break above the descending trendline that had been drawn from multiple high points since late July. This trendline had previously caused resistance during the prior week. However, on Wednesday, Bitcoin retraced to hover around the $59,840 level after encountering resistance from the 100-day Exponential Moving Average (EMA) positioned at $60,718.

If Bitcoin successfully closes above the 100-day EMA at $60,718, it could potentially rally to retest its 61.8% Fibonacci retracement level near $62,000. A successful breakout above the $62,000 mark may trigger additional upward momentum, driving prices as high as the daily resistance zone at $65,379.

The Moving Average Convergence Divergence (MACD) indicator lends further credence to Bitcoin’s bullish prospects, as it illustrates a crossover signal on the daily chart. The MACD line (blue) has crossed above the signal line (yellow), suggesting a buy sentiment. This display is further supported by growing green histogram bars above the neutral zero line, indicating that Bitcoin’s price may gain upward traction.

On the other hand, the Relative Strength Index (RSI) remains relatively unchanged and close to a neutral reading, hinting at a lack of short-term momentum.

BTC/USDT daily chart

Nevertheless, should BTC close below the critical support level of $56,022, the prevailing bullish narrative may be invalidated. In such a case, a retracement of about 3.6% could occur, leading to a test of the psychologically significant level of $54,000.