Bitcoin's Fed Cut Trade Reverses
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The bond market is now pricing in a Fed rate hike by year-end, with swaps implying at least 25 basis points higher by end-2026. This marks a sharp reversal from earlier expectations of cuts, driven by persistent inflation and hawkish Fed commentary. Governor Waller's call to remove easing bias reinforces the shift, effectively ending the 'Fed cut trade' that had supported risk assets.
For Bitcoin, the flip from easing to tightening poses headwinds. Higher rates typically reduce liquidity appetite for speculative assets. However, Bitcoin's correlation with traditional markets has been inconsistent. If the rate hike narrative strengthens, Bitcoin may face downward pressure, but its unique store-of-value narrative could decouple.
Market focus now shifts to upcoming inflation data and Fed meetings. A sustained hawkish stance could deepen Bitcoin's correction, while any dovish surprise might reignite upside. Traders should brace for volatility as the macro backdrop turns less accommodative.
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