Bitcoin price falters ahead of Fed rate cut, weak global economic data

The Bitcoin (BTC) price fell 4.1% between September 15 and September 16, dropping to $57,595 after being rejected from the $60,000 level. This decline wiped out the gains made on September 13, when the Bitcoin price surged from $57,890 to $60,580 in less than 10 hours.

Some analysts attribute Bitcoin’s recent rally to the weakness of the U.S. dollar, which coincides with gold hitting all-time highs. Meanwhile, others argue that the bullish momentum on September 13 was fueled by $263 million inflows into Bitcoin spot exchange-traded funds (ETFs) and MicroStrategy’s recent $1.11 billion purchase of BTC.

Despite these factors, the Bitcoin price has struggled to break above $62,000 for nearly three weeks, and bulls are becoming more cautious. With the U.S. Federal Reserve expected to ease some of its contractionary monetary policy by cutting interest rates, traders have little incentive to position aggressively ahead of the event.

The 0.50% rate cut at the September 18 Federal Open Market Committee (FOMC) meeting will be favorable for risk-taking markets, but Bitcoin’s momentum could be weakened if investors focus on stocks. The S&P 500 is trading 1% below its all-time high, and big tech companies are still posting strong earnings despite their significant cash reserves, which are supporting their stock prices through share repurchase programs.

However, if the Fed chooses to cut rates by a more cautious 0.25%, it could have negative implications for risk-taking markets. The higher cost of capital for businesses and consumers could curb hiring and spending, hurting corporate earnings and exacerbating the already struggling commercial real estate market.

China’s economic slowdown increases uncertainty

China’s economic outlook remains a concern for investors, and by extension, the Bitcoin price. According to data released on September 14, China’s retail sales grew by just 2.1% year-over-year in August, a slowdown from the 2.7% growth seen in previous months. Likewise, China’s industrial production grew by 4.5% in August, down from 5.1% year-over-year growth in July.

“The long-term issues around real estate prices and the short-term issues around domestic demand have not gone very well at all,” Eswar Prasad, a professor of international trade and economics at Cornell University, told CNBC. Prasad warned that the outlook for China’s economy in the second half of the year is now “very close to a deficit.”

Therefore, in the short term, Bitcoin’s price faces significant risk due to macroeconomic factors. However, it can be argued that Bitcoin will eventually recover as it acts as a hedge against potential government measures to stimulate the economy through an independent financial system and monetary expansion. On the other hand, in times of uncertainty, traders typically seek refuge in short-term US government bonds, gold, and cash.

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Dormant Bitcoin Addresses and the Growing Regulatory Risk

Despite positive inflows into spot Bitcoin ETFs and continued strong demand for MicroStrategy, two recent events have weighed on investor sentiment. According to Sani, an on-chain analyst and founder of TimeChainIndex, a Bitcoin address that had been dormant for the past nine years moved 211.3 BTC to the Kraken exchange on September 15. This $12.7 million transaction indicated selling activity by long-term holders.

Additionally, investor sentiment has been dampened after the U.S. Securities and Exchange Commission (SEC) expanded its case against cryptocurrency exchanges, intensifying its lawsuit against Binance. The SEC has now classified tokens such as Axie Infinity, Filecoin, and Cosmos as unregistered securities, and claims Binance failed to provide adequate disclosures.

Ultimately, beyond macroeconomic uncertainty, increased regulatory risk surrounding the largest cryptocurrency exchanges has further diminished investor interest in Bitcoin.