Could the Fed's Rate Cut Signal a Bullish Turn for Bitcoin?

The market got what it craved: a 50 bps rate cut with no signs of economic weakness.

\ The Fed’s dot-plot shows consensus on more rate cuts ahead. This is bullish for financial markets, and while it might raise concerns about inflation, Bitcoin stands to benefit.

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\ The Fed’s rate cut has eased global pressure, and central banks worldwide are expected to follow.

\ China has already presented its “economic bazooka” which involves a combination of liquidity injection into the system and rate cutting. ECB has also signaled its intention to lower rates.

\ This is bullish for markets, and Bitcoin has soared more than 6% trading north of $65.000 at the time of writing this letter. This surge puts great pressure on bears who will now struggle to find technical arguments to go short Bitcoin as most technical indicators are flipping bullish.

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Bitcoin's technicals suggest we’re nearing a breakout from a six-month consolidation. While a retracement is possible, the market looks ready to break higher. A convincing break with the triangle upwards will suggest that the all time high of $73k will soon be challenged.

Gold has spiked due to recession fears, inflation talk, and geopolitical tensions. Since early 2023, Bitcoin has closely followed Gold’s trend, so there’s reason to believe Bitcoin could follow Gold’s path to new highs.

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For six months, Bitcoin has been range-bound between $50K and $65K—a dull period for investors.

\ In such times, it's easy to doubt Bitcoin’s potential, but consider the large selling events that occurred without driving Bitcoin below $50K. Since January 2024:

\ Mt. Gox repaid 142,000 BTC to creditors, finally allowing them to sell. Grayscale’s Bitcoin Trust saw outflows over $600M. Germany’s Saxony State sold nearly $3 billion worth of BTC.

\ Despite these headwinds, Bitcoin held firm above $50K, and the old saying “In a bull market, bad news doesn’t matter” comes to mind.

Bitcoin often needs a catalyst to ignite its rallies. Waiting for one to unfold risks missing the early part of the move.

Take the ETF launches in January 2024. Those who waited on the ETF approval missed out on a 100% price jump after BlackRock’s ETF application was announced.

\ That’s why I believe getting significant exposure now is smarter than waiting for a catalyst.

\ What are the catalysts? Here are four key ones that could drive Bitcoin higher:

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1. Trump Winning the U.S. Presidential Election A Trump victory would be bullish for the digital economy. Trump would likely replace the current SEC chair, leading to a more crypto-friendly stance. The U.S. would probably hold onto its Bitcoin, and new policies could attract crypto companies back to the U.S.

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2. FTX Payout to Creditors Larger Than Expected FTX has recovered up to $16B to repay creditors, though the actual payout might be closer to $3-5B. If the payout exceeds expectations, it could unleash fresh capital into the crypto market, especially from professional retail investors with high confidence in crypto.

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3. Rate Cutting Cycle Continues Globally Despite fears of the Fed being too slow, the market is confident in the rate cuts. Other large economies are following suit. China announced a 500B Yuan stimulus and rate cuts, and expectations are high for the ECB to do the same.

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4. Option-trading to be allowed on Bitcoin ETFs The SEC recently approved options trading on BlackRock’s Bitcoin ETF. This development boosts liquidity and opens the door to a potential gamma squeeze on Bitcoin. Jeff Park from Bitwise wrote a great primer it here.

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With major catalysts ahead and Bitcoin already showing bullish momentum, staying on the sidelines could mean missing out on significant upside.

\ Fortune favors the bold.

\ Best of luck.

Ulrik