Is bitcoin’s bottom in?

Ahead of the Federal Reserve’s rate-cut decision next week, analysts debate what could be next for crypto markets.

There’s never a dull moment on the blockchain. Here’s what you need to know this week:

Crypto markets leveled off after the steepest drop of 2024. How crypto ETFs, altcoins, and onchain activity are faring amid recent volatility.

Has BTC hit its bottom for this cycle? As the Fed’s rate-cut verdict looms, crypto analysts weigh in with bull and bear cases.

This week in numbers. Bitcoin’s cumulative trading volume so far this year, the list of startups in a crypto accelerator program, and more stats to know.

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MARKET BYTES

With rate cuts likely approaching, BTC rebounded after its worst week in a year

Last week, BTC experienced its worst run in a year as pressures mounted in the form of mixed U.S. job data, deflation risk in China, uncertainty over the impact of the U.S. presidential election, and September’s reputation as a slow month for asset classes like crypto and stocks.

On Monday, however, bitcoin prices bounced back above $57,000, a gain of more than 9%. The rally came as markets began to anticipate next week’s Federal Reserve meeting, at which the U.S. central bank is widely expected to cut interest rates for the first time since raising them to two-decade highs in 2023 (more on this in the story below).

Here are three more market stories you should know.

Crypto ETFs just had their worst streak since launch

The biggest catalyst for crypto’s 2024 rally was the launch of spot BTC exchange-traded funds (ETFs) in January, which included record-breaking products from Wall Street giants BlackRock and Fidelity.

Over eight days ending on Sept. 6, however, investors pulled $1.2 billion from the funds in the longest run of net outflows since launch. According to Bloomberg, the outflows were “part of a wider retreat from riskier assets in a challenging period for global markets.”

Signs of life… On Monday, several of the BTC ETFs saw their balance sheets begin to turn around. ETFs from Fidelity, Bitwise, ARK, and Invesco notched a combined $28.6 million in inflows. BlackRock’s leading IBIT product, however, continued to shed capital, losing $9.1 million.

Altcoin rally preceded the bitcoin bounce

Over the weekend, as BTC hovered around $54,000, an index representing 20 major altcoins rallied by 4%, with 19 of the 20 tokens all in the green.

Of the tokens that make up the CoinDesk 20 index, Avalanche (AVAX) led the pack with a 12.8% gain; Chainlink (LINK) and Uniswap (UNI) rounded out the top three, with gains of 10.1% and 9.6% respectively.

Altcoin season?… Altcoins have been outperforming BTC since August, according to a new Bitfinex report — an unusual trend given the challenging backdrop for markets. “This divergence suggests a shift in investor sentiment and market dynamics where, instead of flocking to the relative safety of bitcoin, investors might be seeing potential value or receiving positive signals from the altcoin markets,” noted the report.

Ethereum and Solana onchain activity is down

Decentralized exchange volume for both Ethereum and Solana has recently dropped to multi-month lows, according to a new Coinbase Institutional report. Ethereum’s average daily DEX volume has dropped to $1.25 billion from this summer’s typical $1.7 billion. Solana’s onchain trading volume has also dropped nearly 50% from recent months, to around $752 billion currently.

Memecoin blues… Beyond the broader headwinds markets have been facing, one reason Solana volumes are down so much more than ETH volumes is likely due to the cooling of the memecoin trend from earlier this year.

ANALYST FORECAST

Have we gotten past BTC’s bottom for this cycle?

Since hitting a new all-time high in March, bitcoin sold off and has been mostly trading sideways for months. But next week, an announcement from the Federal Reserve has the potential to shake things up in a major way.

The U.S. central bank is widely expected to begin cutting interest rates from the two-decade highs where they’ve been sitting for more than a year.

Meanwhile, crypto market sentiment remains in “fear” territory and analysts are divided on where things are heading next. While a number of technical indicators suggest that BTC is poised to rise, its price action could be dependent on the Fed’s next move, and how markets respond.

So, are we past this cycle’s bottom for BTC, or is there more volatility to come?

Here’s what you need to know.

What does a rate cut typically mean for markets?

Rate cuts are often considered to be a bullish signal, and investors have been anticipating one for months, especially following two straight months of jobs reports that showed emerging challenges in the labor market. After the latest report showed 142,000 jobs added in August (18,000 below expectations), BTC sank to monthly lows around $52,500.

Falling interest rates generally mean that more money flows throughout the economy because borrowing becomes less expensive. They also make hanging on to cash less appealing. Investors currently have around $6 trillion sitting in money market funds, which they could begin deploying into other markets, like crypto or stocks.

Over the past 100 years, for example, whenever there has been an interest-rate cut followed by no recession, the stock market averaged a 17% gain over the following year, notes an article from Bankrate.

Is there a scenario where a rate cut is bad for crypto?

Potentially. Currently, most investors are anticipating a 0.25% rate cut, with just 30% betting on the Fed cutting rates by 0.50% next week.

If the Fed cuts rates more than expected, the move could create more fear for investors, who might see a deep rate cut as a sign that the Fed has serious concerns about the economy. A smaller rate cut, on the other hand, could indicate that the Fed has confidence in the economy’s resilience and isn’t anticipating a major downturn.

What are analysts predicting will happen?

September is historically one of bitcoin’s worst-performing months of the year. But if the economy remains resilient, September blues could pave the way for a more bullish Q4.

“Buying … in September to build exposure for Q4 has historically been the best spot strategy,” said Vetle Lunde, senior research analyst at K33, and one of many analysts arguing that BTC is currently undervalued.

Other analysts argue that the rate cut has already been “priced in” by traders — and that prices could dip in the immediate aftermath in a “buy the rumor, sell the news” dynamic, before potentially climbing again after the initial sell-off.

“Initially, [rate cuts] are seen as a 'sell the news' event also because they typically occur during economic slowdowns, causing risk assets to underperform,” said Fineqia analyst Matteo Greco. “However, as markets adjust and expectations are priced in, the benefits of lower interest rates start to emerge.”

If the Fed does decide to cut rates by 0.50%, some analysts believe that could cause bitcoin to slide by as much as 20%, which could bring the asset’s price to as low as $40,000. “The chorus is growing louder that the Fed is behind the curve, having missed signs of labor market weakness after being caught off guard in July,” said Markus Thielen, founder of 10x Research.

And if the Fed cuts rates more slowly than expected? A new BlackRock report suggests that possibility could lead to “volatility flare-ups ahead.”

What other factors are investors watching?

Despite the open question of what the Fed will choose to do, a number of technical analysis signals are pointing in a positive direction for bitcoin:

Order book liquidity, which is a measure of how many buy or sell orders have been placed near bitcoin’s market price, largely dried up over the weekend — which is often a signal that a price reversal is imminent. “It's a signal worth monitoring for traders looking to catch significant movements before they unfold. Understanding these imbalances can help identify key turning points in the market,” said Shubh Verma, co-founder and CEO of Hyblock Capital.
Another key indicator that could portend a trend reversal is bitcoin’s relative strength index (RSI). RSI measures whether an asset is currently “overbought” or “oversold,” with overbought conditions indicating that price could be due for a downward correction, and oversold conditions indicating the inverse.

Over the weekend, bitcoin’s RSI dropped into “oversold” conditions, and its recovery since the weekend’s lows has also aligned with a steady rise in RSI.

The bottom line…

As of Tuesday, market data mostly showed a cautious sentiment — unsurprising given all the unknowns that could have a major impact on prices moving forward, from the outcome of the U.S. presidential election to geopolitical turbulence. Next week, however, all eyes will be on the Fed, which is expected to make its announcement on Wednesday.

Read our September guide

NUMBERS TO KNOW

$2.87 trillion

Bitcoin’s cumulative trading volume from January to August of this year, a record high and 20% higher than the $2.42 trillion logged during the first eight months of the 2021 bull market. “The rise in crypto volatility has been accompanied by increased market participation,” according to data firm Kaiko.

$2 million

The value of Japanese investment firm Metaplanet’s most recent bitcoin purchase (38.464 BTC), per a September 10 filing. Since the firm’s “strategic pivot” in April to begin making bitcoin its core treasury asset — following the lead of the top corporate BTC holder, MicroStrategy — Metaplanet has accumulated nearly 400 BTC, worth about $23 million.

Number of startups that venture capital firm (and Coinbase investor) a16z will include in the fall edition of their Crypto Startup Accelerator, which provides a minimum $500,000 investment and operational mentorship for each company. Among the startups in the program are Suave, which enables dapps to accept tokens from any wallet or blockchain; Term Labs, a DeFi lending platform; and Skyfire, a payment protocol that enables AI agents to make payments.