Bitcoin falls below 104,000. The probability of the Fed cutting interest rates tonight is over 95%, but will it be suspended next year?

The US Federal Reserve (Fed) is expected to announce its interest rate decision at 3am (19th) tomorrow. The market generally expects the Fed to cut rates by another 25 basis points in December. According to the CME Fed Watch tool, the market expects a 95.4% chance of a 25 basis point rate cut in December, and only a 2% chance of keeping rates unchanged.

This marks the third consecutive rate cut by the Federal Reserve since September, and the cumulative rate cut will reach 1 percentage point, reaching the 4.25-4.50% range.

However, traders currently also expect the Federal Reserve to start pausing rate cuts and keep rates in the 4.25-4.50% range in January next year, with a chance of nearly 80%, and only a 16.3% chance of another 25 basis point cut, which may not be good news for market liquidity.

Traders are watching the expected Fed rate cut

BTC broke through the historic high of $108,000 last night, but has started to correct, possibly because traders are waiting for the expected Fed rate cut and evaluating the optimistic sentiment brought by Trump's official confirmation of election victory today through the Electoral College vote, as well as his support for cryptocurrencies.

BTC reached $108,365 on Tuesday evening, but had fallen back to a low of $103,600 by noon today, a drop of nearly 4.4%. As of the time of writing, it is trading at $103,933, with the 24-hour gain narrowed to about 2.4%.

Trump has rolled out a series of crypto-friendly policies before the election, such as creating a friendly regulatory environment, allowing the US to lead the cryptocurrency industry, and even supporting the establishment of a BTC national strategic reserve, which has caused BTC to soar by more than 59% from around $68,000 at the time of the election to its recent high, and has also caused the stock price of MicroStrategy, the leading BTC holder among US-listed companies, to explode, and it is about to be included in the NASDAQ 100 index. The crypto market is in a frenzy, surrounded by optimistic sentiment.

The report says that although people generally expect the Federal Reserve to announce another 25 basis point rate cut tomorrow, the uncertain policy outlook of the Federal Reserve due to the strong economic growth in the US and the inflationary risks implied in Trump's tax and immigration policy agenda.

Further reading: Fed's Mouthpiece: 97.1% Chance of 25bp Rate Cut in December! Rate Cuts May Be Put on Hold Next Year

Will BTC further rise after the Fed rate cut?

K33 Research analysts Vetle Lunde and David Zimmerman wrote in a report:

"We expect the upcoming FOMC meeting to increase market volatility. In the aftermath, the macroeconomic landscape will likely see a few calm weeks, which could further lay the groundwork for BTC's momentum during the Christmas holidays."

0x Research's analysis based on trading models yesterday showed that by January 20, 2025, when Trump takes office, BTC could surge to $120,000, with an 83.33% probability according to the model.

However, some analysts also emphasize that "chasing BTC needs to be cautious" at the current level, and an anonymous expert also told ABMedia that the current BTC price may have already priced in (i.e. the market has already anticipated and reflected the event or information in the price), because the market had generally expected a rate cut earlier. Under this premise, if the Fed cuts rates as expected tomorrow, the market's bullish sentiment may be exhausted and it will pull back, but it will be a relatively small correction.

However, there is an extremely small chance that the Fed may announce a pause in rate cuts, mainly because some Fed officials have mentioned the need to slow the pace of rate cuts, or even raise rates to curb inflation, but this view should be in the minority and unlikely to gain a majority vote. However, if this no-rate-cut scenario occurs, it could trigger a major market crash.