The Federal Reserve (FED) is set to cut interest rates! Bitcoin rebounds in vengeance, recovering more than half of its October losses.

Bitcoin (BTC) price rebounded and broke through the resistance level of $115,000, helping Bitcoin recover nearly half of the losses caused by the big dump earlier this month. The U.S. Bureau of Labor Statistics released September inflation data on Saturday, with CPI data weaker than expected. The CME Fed Watch tool shows a 98.3% probability of a rate cut by The Federal Reserve (FED), expected to occur at the meeting on October 29.

Bitcoin recovers half of October's losses, breaking through 115,000 USD

(Source: Trading View)

According to data from CryptoSlate, the price of Bitcoin (BTC) rebounded over the weekend, breaking through the resistance level of $112,000, with a trading price of $115,120 at the time of writing. This repeated testing and breaking of the key resistance level indicates that bullish forces are gradually consolidating their advantage.

The latest price trend has helped Bitcoin recover nearly half of the losses caused by the big dump earlier this month. On October 10, the cryptocurrency market experienced a significant crash, resulting in billions of dollars in market value evaporating, which led to the price of Bitcoin falling to $103,000 on October 17. From $103,000 to the current $115,120, Bitcoin has rebounded more than 10%. If we reference the high point before the crash on October 10 (around $125,000), Bitcoin's decline from high to low is about 17.6%, and the current rebound has recovered approximately 59% of that decline.

This “V-shaped rebound” is often seen as a strong signal in technical analysis. When prices can quickly recover most of the lost ground after a big dump, it indicates that the market's reaction to the big dump is “oversold” rather than a “trend reversal.” Investors quickly realize that prices are undervalued after a panic sell-off, leading to a surge in buying interest that drives prices back up rapidly. This market behavior shows that the fundamentals supporting Bitcoin remain solid, and the big dump is merely the result of short-term emotional fluctuations.

Bitcoin closed strongly this week, coinciding with market expectations that the Federal Reserve (FED) will soon lower interest rates. From a time frame perspective, there are only a few days left until the FOMC meeting on October 29, and the market is “front-running” the rate cut expectations. This expectation-driven rally often peaks before the actual news is released, so investors need to be cautious of the risk of “selling the fact.” However, if the Federal Reserve's rate cut statement signals further easing expectations, Bitcoin may continue to rise.

The Federal Reserve (FED) interest rate cut 98.3% certain, CPI lower than expected becomes a catalyst

The U.S. Bureau of Labor Statistics released the inflation data for September on Saturday, which was weaker than expected. The report showed that the Consumer Price Index (CPI) and Core CPI for September were both at 3%, below the expected 3.1%. According to the financial communication “The Kobeissi Letter,” the CPI data suggests that the Federal Reserve (FED) will lower interest rates next week. The CME Group's FedWatch tool also indicates a 98.3% chance of the Federal Reserve (FED) cutting rates.

A lower-than-expected CPI is an important catalyst for the Federal Reserve to cut interest rates. The Federal Reserve's dual mandate is to maintain price stability and full employment. When inflation data shows a reduction in price pressures, the Federal Reserve has greater leeway to cut rates to stimulate the economy. Although a 3% CPI is still above the Federal Reserve's 2% target, it has significantly decreased from the previous peak of over 5%. More importantly, the lower-than-expected data has alleviated market concerns about a rebound in inflation, clearing the final obstacle for the Federal Reserve to cut interest rates.

Lowering interest rates usually leads to an increase in cryptocurrency prices, as borrowing costs become lower and high-risk assets become more attractive. The logic chain is: lowering interest rates → lower cost of funds → investors willing to take on more risk → funds flowing into high-risk, high-return assets such as cryptocurrencies. Moreover, lowering interest rates is often accompanied by a depreciation of the dollar, while Bitcoin, as “digital gold,” will benefit from the hedging demand arising from the decline in the dollar's purchasing power.

Bitcoin closed strong this week, as the market anticipates that The Federal Reserve (FED) will lower interest rates by 0.25% at the upcoming meeting on October 29. Historically, the beginning of a rate cut cycle by The Federal Reserve (FED) often marks the starting point of a bull market for risk assets. After The Federal Reserve (FED) shifted from raising rates to cutting rates in 2019, Bitcoin rebounded from $3,000 to $10,000 in 2020. The emergency rate cuts and quantitative easing by The Federal Reserve (FED) in 2020 propelled Bitcoin from $4,000 in March 2020 to a historical high of $69,000 in November 2021. If The Federal Reserve (FED) enters another rate cut cycle, Bitcoin may replicate this explosive rise.

The Three Major Impacts of The Federal Reserve (FED) Lowering Interest Rates on Bitcoin:

Lower Capital Costs: The decrease in borrowing rates enhances the attractiveness of leveraged trading, increasing speculative demand.

Expectation of US Dollar Depreciation: Interest rate cuts lead to a decrease in the purchasing power of the US dollar, benefiting Bitcoin as a safe-haven asset.

Risk appetite rises: Loose monetary policy boosts market confidence, with funds flowing into high-risk assets.

Ethereum's increase surpasses Bitcoin, indicating capital rotation

CryptoSlate data shows that in the past 24 hours, the price of Ethereum (ETH) has increased by 3.58%, almost double the 1.94% rise of Bitcoin. Solana (SOL) and Cardano (ADA) have also seen growth close to Ethereum in the past day, reaching 3.46% and 3.45%, respectively. This phenomenon of altcoins outpacing Bitcoin is often a signal of rising market risk appetite.

When investor confidence increases and they are willing to take on more risk, funds often rotate from Bitcoin, which is a “relatively safe” asset, to more volatile altcoins like Ethereum and Solana, seeking greater potential returns. Ethereum's single-day increase of 3.58% surpasses Bitcoin's 1.94%, indicating that this fund rotation is occurring in the market. This is a typical characteristic of the acceleration phase of a bull market, where funds begin to overflow into altcoins once Bitcoin stabilizes at a high level.

However, in terms of weekly gains, Bitcoin has taken the crown with a 4.97% increase over the past 7 days, more than double Ethereum's 2.37% increase. This difference in daily and weekly performance shows that Bitcoin's overall performance this week is stronger, while Ethereum has only accelerated its catch-up in the last 24 hours. From the perspective of capital flow analysis, Bitcoin may be the preferred target for capital inflow this week, while Ethereum has started to attract more attention over the weekend.

Data shows that among the top 10 tokens, XRP had the highest price increase over the past week, rising by 9.27%. XRP's strong performance may be related to the final resolution of the Ripple lawsuit, progress on the XRP ETF application, and the Trump administration's crypto-friendly policies. As a payment and cross-border settlement tool, XRP's potential for institutional adoption is being reassessed in the context of improving regulatory environments.

Exchange reserves drop to 2.4 million coins, supply tightness drives prices

Another Bitcoin trader, with the username Merlijn The Trader on X, pointed out that the exchange's Bitcoin reserves have dropped to 2.4 million. He wrote, “When supply runs dry, prices won't stay low for long.” This observation is extremely important, as exchange reserves are a direct indicator of the market's immediately tradable supply. 2.4 million Bitcoins account for about 11.4% of the total supply of 21 million, hitting an all-time low.

The decrease in exchange reserves can typically be interpreted in two ways. The first interpretation is that long-term holders are transferring Bitcoin from exchanges to cold wallets, indicating their confidence in the long-term outlook and that they do not intend to sell in the short term. The second interpretation is that institutional investors are buying large amounts through the OTC market, and these Bitcoins have not entered circulation on exchanges. In either case, the reduction in exchange reserves means that the number of Bitcoins available for trading in the market decreases, which drives prices up from a supply and demand perspective.

“When supply is depleted, prices will not remain low for long” reveals a fundamental principle of economics. When demand remains stable or grows, a decrease in supply will inevitably lead to rising prices. The fixed supply cap of Bitcoin at 21 million coins, combined with the ongoing decline in exchange reserves, creates a long-term supply tightness. This is one of the core arguments for Bitcoin as a store of value: scarcity drives value.

Fear and Greed Index shifts from fear to neutral, market sentiment recovers

It is worth noting that the Bitcoin Fear and Greed Index has also risen significantly from the fear zone to the neutral zone, indicating a shift in market sentiment. As of the writing of this article, the index has risen from 29 points last week and 37 points on Saturday to 40 points. The Fear and Greed Index is a composite indicator that measures market sentiment, ranging from 0 (extreme fear) to 100 (extreme greed).

The rise from 29 points to 40 points indicates that market sentiment has shifted from “fear” to “neutral” in just a few days. 29 points belong to the fear zone, which is usually accompanied by panic selling and pessimistic expectations. Although 40 points is still below the neutral line of 50, it is getting closer, showing that market panic is fading and investor confidence is recovering. This emotional repair is often a prerequisite for price rebounds, as when fear dominates, it is difficult to push prices up even with positive news.

Market optimism is on the rise. A high-risk speculative Web3 investor named Borovik on the X platform pointed out that Bitcoin breaking above the $113,000 level indicates that “a new historical high is on the way.” Another user, Marzell, wrote: “As long as the price remains above this area, the short-term bullish structure remains intact.” Marzell added that if Bitcoin's price momentum remains unchanged, the next key target will be above $117,000.

From the current $113,724 to $117,000, this implies an approximate increase of 2.9%. This is a relatively moderate short-term target, reflecting the market's cautious optimism. After breaking through $117,000, the next target will be the psychological barrier of $120,000, and further up is the historical high zone of $125,000 to $126,000. If the Federal Reserve (FED) proceeds with the interest rate cut as scheduled and the market reacts positively, Bitcoin may challenge or even break the historical high in November, initiating a new price discovery phase.