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The cryptocurrency market is beginning to feel pressure, as expectations for Federal Reserve policy are rapidly changing. The likelihood that rate cuts will continue until 2027 is currently practically zero percent, according to FedWatch probabilities. More significantly, traders are factoring in a 55% chance of another rate increase by January. Compared to previous predictions that the Fed would start easing much sooner, this is a significant change.
The Bitcoin macro change
When liquidity increases, borrowing becomes more affordable, and investors shift their money into riskier assets, cryptocurrency markets function at their best. Usually, rate reductions contribute to those circumstances. The opposite is true when interest rates rise. They lower market speculative appetite, strengthen the dollar, and tighten liquidity.
Because of this, despite earlier bullish momentum, Bitcoin recently failed close to the $81,000 resistance zone and began to retreat. According to the chart, Bitcoin is currently slipping back toward important support close to the 100-day moving average and is breaking down from a short-term rising structure. As macro uncertainty increases, buyers are growing more cautious, as evidenced by the sharp decline in RSI momentum.
Pivoting is in doubt
However, the situation is more nuanced than a straightforward higher rates equals lower Bitcoin argument. The market is now getting close to the point where the Fed may eventually be forced to ease in the future due to pressure. Expectations may quickly shift in the future due to a slowing economy, rising debt servicing costs, banking stress, or worsening job conditions.
For this reason, when policy eventually changes, investors continue to see Bitcoin as a possible long-term winner. But the market is currently going into a defensive phase.
The most likely short-term scenario is ongoing volatility, with BTC trading within a wide range as investors respond to Fed commentary, labor reports, and inflation data. Bitcoin may return to the $72,000-$74,000 range fairly quickly if markets are persuaded that another increase is imminent. However, because markets are already positioned defensively, Bitcoin could rise sharply if inflation unexpectedly declines or economic conditions worsen quickly enough to undermine the Fed's position.
Dan Burgin
