The Fed keeps interest rates unchanged, liquidity improvement may drive Bitcoin rebound

The Fed decided to maintain the target range for the federal funds rate at 4.25%-4.50% in its latest meeting, a decision that aligns with market expectations. Although the interest rate remains unchanged, the Fed has released a series of easing signals, including softened language, a slowdown in balance sheet reduction, a downward revision of economic growth expectations, and the dot plot indicating a path for interest rate cuts. These factors collectively influence market expectations for the future monetary policy environment and directly impact the global asset market, including Bitcoin.

Fed Decision Core Content

The Fed emphasized in its post-meeting statement that “the policy stance remains restrictive to ensure inflation returns to the 2% target.” Compared to the wording of the past few meetings, this decision’s language has softened. The Fed expects the U.S. GDP growth rate for 2025 to be revised down from the previous forecast of 2.1% to 1.8%, while the core PCE for 2025 is revised up from 2.2% to 2.4%. This reflects the Fed’s cautious attitude towards the future economic situation.

The Fed announced that the pace of tapering will decrease from $60 billion to $50 billion, signaling that the liquidity tightening cycle is about to slow down. The dot plot shows that the median interest rate expectation for FOMC members in 2025 is 3.75%, indicating at least two rate cuts.

The Direct Impact of Fed Policies on the Market

The US dollar index has significantly retreated, marking the largest single-day decline since 2023. A weaker dollar typically indicates that global capital is more willing to flow into high-yield assets, which supports risk assets like Bitcoin.

The yield on U.S. Treasuries is declining, with the 10-year U.S. Treasury yield falling from 4.3% to 4.1%, indicating that the market is anticipating the possibility of future rate cuts. Lower U.S. Treasury yields mean reduced funding costs, thereby enhancing the appeal of risk assets.

Tech stocks and growth stocks have seen a strong rebound. The Nasdaq index surged more than 2%, a trend that is a positive signal for the crypto market, as the correlation between tech stocks and Bitcoin has been increasing in recent years.

Bitcoin prices surged more than 5% in the short term, breaking through the key resistance level of $85,000. Mainstream coins like Ethereum also rose in tandem, reflecting the market’s strengthening expectations for liquidity easing.

Liquidity Environment Analysis

The pace of global liquidity tightening is slowing down. The Fed has clearly stated that the pace of balance sheet reduction will slow, and the dot plot indicates that there may be 2-3 rate cuts within the next 12 months. This means that the tightening of restrictive monetary policy over the past two years is weakening, and market liquidity may improve.

The 90-day rolling correlation between Bitcoin and the US stock market (especially the Nasdaq index) reached a high of 0.75 in 2024, indicating a significant increase in the linkage between the two. As the market adjusts to the Fed’s future policies, technology stocks have begun to rebound, and this trend is likely to drive the prices of cryptocurrency assets such as Bitcoin higher.

The total balance of the stablecoin market has grown to $229 billion, indicating that off-market funds are accumulating, waiting to enter. The total balance of USDT and USDC has continued to increase since the end of 2023, showing that a large amount of funds are on the sidelines, and once the market trend is determined, these funds may quickly flow back into Bitcoin and other crypto assets.

Bitcoin Market Outlook

From a technical analysis perspective, the recent market trend of Bitcoin shows signs of enhanced bottom support:

1. The key support level of $76,000-$80,000 forms the market bottom.

2. RSI (Relative Strength Index) rebounds, and market momentum recovers.

3. Trading volume gradually increases, and market liquidity recovers.

On the institutional investor side, Grayscale’s BTC holdings remain stable, with no large-scale sell-off. The fund flows of Bitcoin spot ETFs indicate that institutions are increasing their BTC positions. MicroStrategy continues to accumulate BTC, and institutions maintain confidence in its long-term value.

However, there are still some risk factors in the market:

1. Uncertainty of the Fed’s policy. If inflation data shows a Rebound, the Fed may delay interest rate cuts or even further tighten Liquidity.

2. Global geopolitical risks may affect investors’ risk appetite.

3. Liquidity risk within the crypto market.

Investment Strategy Recommendations

Short-term traders: Pay attention to the key support level of $80,000. If it is broken, consider a short-term stop loss. Wait for the price to break above the $88,000 area and gain confirmation before increasing positions. Keep a close watch on the release of macroeconomic events.

Medium to long-term investors: You can build positions in batches when the price pulls back, especially near the range of $88,000-$83,000. Pay attention to the long-term trend of BTC and changes in market sentiment.

Institutional investors: closely monitor changes in Fed policy and consider long-term holdings of Bitcoin and Ethereum to hedge against the risk of dollar depreciation.

Conclusion

With the gradual stabilization of Fed policies and the warming of the liquidity environment, the short-term rebound and mid- to long-term rise of Bitcoin may gradually increase. The prospects for improved market liquidity are clear, and Bitcoin is expected to enter a new round of upward cycle. However, investors still need to be vigilant about the uncertainty of Fed policies, geopolitical risks, and potential liquidity issues in the crypto market, and make reasonable asset allocations based on their own risk tolerance.