Bitcoin Crashes After Fed Rate Cut as Traders Fall for ‘Buy the Rumor, Sell the News’ Trap

The Federal Reserve’s broadly anticipated 0.25% fee reduce on Wednesday triggered a wave of volatility throughout each conventional and crypto markets. Powell’s cautious phrases spooked crypto markets as Bitcoin briefly dipped beneath $108,000 in a basic “purchase the rumor, promote the information” situation.

But historic patterns level to rebounds after such crowd capitulation.

Crypto Turns Cautious

Santiment, in its newest replace, stated that Bitcoin’s decline following Jerome Powell’s hawkish tone mirrored an overextension of optimism that had constructed up forward of the announcement. Traders had priced in a dovish message and additional easing by means of year-end, however Powell’s warning that one other reduce in December is “not assured” flipped sentiment abruptly.

BTC plunged beneath $110,000 as merchants who had positioned for a dovish end result started to unwind their longs. On-chain information confirmed a notable enhance in trade inflows and a cooling in funding charges, which meant that leveraged merchants have been caught off guard by the Fed’s tone.

Social sentiment additionally flipped sharply unfavourable, and discussions round “fee reduce,” “Powell,” and “Fed” dominated crypto-related chatter. Historically, Santiment noticed, these surges in crowd consideration and concern have typically coincided with short-term worth bottoms, suggesting a doable setup for a rebound as soon as panic subsides.

The agency reported that Bitcoin’s correlation with equities weakened instantly after Powell’s feedback, whereas its habits aligned extra intently with gold. The specialists, nonetheless, consider this to be a brief defensive flip amongst buyers in search of stability amid coverage uncertainty.

Across the broader crypto market, altcoins adopted Bitcoin’s transfer as complete market capitalization declined modestly as merchants reassessed expectations for liquidity growth. However, the crypto analytics agency identified that funding charges throughout main exchanges have now normalized, which means extreme leverage has been flushed out. This is anticipated to set the stage for extra natural recoveries.

The agency additionally detected gentle accumulation habits amongst giant holders, as some whales took benefit of the post-FOMC dip. As of now, BTC’s worth construction stays intact above key assist ranges, however sentiment stays cautious.

What’s Next For Bitcoin?

Santiment mentioned that if brief positions start to construct in the subsequent buying and selling classes, it may arrange circumstances for a brief squeeze, doubtlessly pushing Bitcoin again towards the $115,000 zone. For the close to time period, volatility is anticipated to stay high as merchants digest the Fed’s tone.

In a press release to CryptoPotato, analysts at crypto buying and selling platform Bitunix mentioned that Bitcoin’s near-term outlook stays cautious. While draw back dangers stay if assist fails, the presence of robust liquidity clusters and ongoing rebalancing might assist stabilize worth motion.

“Bitcoin’s liquidation heatmap reveals key assist between $109,600-$108,000 – a breakdown beneath may set off cascading liquidations – whereas resistance lies close to $112,300 and $116,000. With liquidity being reallocated and the greenback regaining energy, the crypto market might enter a part of uneven consolidation. In the brief time period, buyers ought to keep alert to safe-haven flows pushed by macro-policy uncertainty, as markets transition into a brand new stage of ‘structural repricing.’”

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