According to one analyst, Chicago Mercantile Exchange (CME) Bitcoin futures traders increased short positions ahead of Wednesday’s Federal Reserve rate announcement, suggesting they are taking a cautious stance in the market.
The Federal Open Market Committee (FOMC) is expected to release its latest rate decision at 2 p.m. ET on Wednesday, and rate traders are currently expecting a 50 basis point cut in the benchmark rate, the first in four years.
K33 analyst David Zimmerman noted that CME traders have increased their short positions over the past two days. “Active CME market participants have increased their exposure by 5,500 bitcoin over the past two days, with premiums hitting a nine-month low, indicating a shift towards shorting bitcoin,” Zimmerman explained.
The CME Bitcoin futures market is showing concerns that volatility could be on the rise, similar to what was seen following the recent release of the US Consumer Price Index (CPI). “FOMC risk hedging could explain the downward sloping Bitcoin futures premium on the CME, which has fallen below 5% for the first time since January 15,” Zimmerman added.
The analyst observed that while the permanent futures funding rate is rising, the CME futures premium is falling, which he described as “generally a negative short-term signal, leading the market to further expand FOMC volatility.”
Markets Hold Their Breath Ahead of FOMC Meeting
Zimmerman acknowledged that while rate cuts have the potential to improve liquidity in risky assets, market participants still have concerns about a potential recession. Nevertheless, central banks can cut rates to reach a point where the cost of funds is neither irritating nor restrictive.
“The size of the rate cut will be the first major signal, as 50 basis points could raise concerns of a recession, as they did in 2001 and 2007. However, real rates are currently at cycle highs. With inflation cooling and unemployment rising, the Fed could opt for a quick cut to get to neutral. We currently expect a 125 basis point cut by year-end,” the K33 analyst said.
Rate traders have adjusted their expectations, now betting that the Fed will announce a 50-basis point cut at Wednesday’s Federal Open Market Committee (FOMC) meeting, rather than a more conservative 25-basis point cut. The odds of a 50-basis point cut have risen to 65%, according to the CME FedWatch tool, compared to a 35% chance of a 25-basis point cut.
Scaramucci Predicts Bitcoin to Hit All-Time High on Fed Rate Cut
SkyBridge Capital founder Anthony Scaramucci shared a more bullish outlook for Bitcoin, predicting that a combination of interest rate cuts from the U.S. Federal Reserve and favorable crypto regulations could propel the digital asset to new highs. In an interview with Bloomberg, Scaramucci predicted that the Fed will cut rates by at least 150 basis points over the next 18 months.
“We will pass legislation on cryptocurrencies, bitcoin, stablecoins early in the next U.S. Congress,” Scaramucci told Bloomberg in an interview Wednesday. “At the same time, it’s intersecting with the Fed cutting rates, which is going to be very good for asset prices in the U.S. and around the world,” he said, adding that he expects bitcoin to hit $100,000 by year-end.
Bitcoin Bitcoin
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It peaked at $73,798 in March and was driven by demand for dedicated U.S. exchange-traded funds (ETFs). However, the rally has since moderated as inflows into ETFs cool. Over the past 24 hours, the Bitcoin price has risen by about 1.5%, trading at around $59,960 at 7:54 a.m. ET. The pricing page of the block.
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