Of Rate Cuts and the Fed: A Turning Point.

Compass 133

Surprise? 50 BPS Rate Cut.

• Before we knew the Fed's decision, this day was presumed to be one of the most important for the markets—not only because it marked the first rate cut in four years. With each data release, at every FOMC meeting, and during each Powell’s speech, we’ve scrutinized every comma and gesture, always trying to anticipate what’s next, labeling it as "the most important" day.

• We've placed immense importance on these events (understandably so), but we must also realize that the next FOMC meeting and the next data release will carry the same label: "the most important," "crucial," "essential." We must stay calm in the face of expectations and accept what is now certain: the rate cut is here, signaling the beginning of the end of the Fed's restrictive policy.

• What’s important is to see the continuity of future rate cuts and how they are projected in the short and medium term. Initially, another 50 bps rate cut is anticipated before the end of the year. More importantly, we have to observe how this opens the liquidity tap, which will flow into the markets. As a result, Bitcoin and other risk assets will benefit, both from the increase in liquidity and the change in narrative.

• Fed Chair Powell, with a dovish tone, despite insisting that decisions will continue to be made on a data-driven basis, has already claimed victory over inflation, even when he says he’s not. Ultimately, this decision is not entirely technical but also politically influenced, aiming to create a sense of a (more) powerful economy (than it is) and prosperity leading up to the U.S. elections.

• The indicators show a complex outlook: although we were close to the start of an Alt-Season, we have retreated towards the Bitcoin regime without being decisive. Risk has cooled off, but not enough to be out of danger.

• Price momentum remains bearish. Despite Bitcoin consolidating above immediate support levels and flirting with breaking above $60k, it still needs to prove its strength above this level. Meanwhile, the fundamentals have slightly declined, remaining in the neutral zone.

• September was shaping up to be a bearish month, but we need to shift our focus to the period leading up to the start of October. For these reasons, we are bullish before "Rektember" comes to an end.

Speedometers indicating the current state of BTC. The full dot represents the current reading and the white dot represents one week ago.

Risk Peaks and Market Lows.

• One thing is clear: when the risk index peaks at 100, regardless of the price, it indicates excellent buying opportunities. Between July and September, we’ve already had two such opportunities following this signal: in July when the price dipped to $49k, and this month with the drop to $53k.

• Nevertheless, we don’t need the risk to climb back to its maximum to find good buying spots. In the current area where risk is positioned, an upward spike can also present a great buying opportunity while looking for entry points.

  

  YTD time series of the Bitcoin Risk Index.

Market Lows, Extremely Bullish.

• Following this dynamic, we’ve had two key moments: the dip in the second week of July and the lows in the first week of September.