September Fed rate cuts odds drop to 43% – Will Bitcoin’s bull run hold?

Key Takeaways

Fed’s rate cuts expectation for September dropped by 20% as traders repriced their previous bullish outlook. Will the high unrealized profit slow the BTC bull run?

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Bitcoin [BTC] briefly dropped to $115.7K following Fed chair Jerome Powell’s hawkish tone after holding interest rates steady on the 30th of July. 

While the decision was expected, his cautious outlook and a ‘wait and see’ approach for a September triggered a further risk-off move. Powell cited inflation risk from tariffs and noted, 

“For the time being, we’re well-positioned to learn more about the likely course of the economy and the evolving balance of risks before adjusting our policy stance.”

The market quickly repriced the September rate cuts expectations following his statement. 

Fed rate cuts expectations dip

Before the July Fed rate decision, the odds of September rate cuts were above 63%.

As of press time, the chance for a 25 bps cut dropped to 43% while another steady rate (4.25%-4.50%) expectation surged to 57%. 

In most cases, a looser interest rate policy always boosts risk assets like stocks and crypto, Matt Mena, crypto strategist at 21Shares, told AMBCrypto.

He added, 

“For crypto, a Fed pivot could serve as a major tailwind. Looser financial conditions and rate cuts have historically fueled risk assets like Bitcoin, which has long acted as a sponge for excess liquidity.”

However, the Fed’s cautious stance could slow the ongoing bull run. But Mena noted that all conditions were set for a likely dovish pivot, 

“The setup increasingly resembles Q4 2023 – softening inflation, rising political volatility, and a Fed constrained by lagging indicators, which saw Bitcoin end the following year at $100K. The stage is set for a policy pivot. The only question is when.”

At press time, though, BTC bounced back 2% to $118.5K, but most altcoins didn’t follow suit ahead of inflation data (PCE Index). 

According to Mena, if the $114K-$115K support cracks, then BTC could go lower to $110K. 

Another risk factor for the market rally was rising BTC profitability.

Glassnode highlighted that BTC’s unrealized profit hit a record high of $1.4 trillion, and the relative unrealized profit hit levels that triggered past ATH conditions and sell pressure. 

But crypto analytics firm Swissblock held that the BTC rally could go higher if QE (quantitative easing) or a surge in dollar liquidity begins. 

In the short term, the macro pressure could cap BTC below $120K and elevate profit-taking. However, any potential Fed pivot in the mid-term could spark a rebound.