Fed Rate Cuts Signal Dovish Shift as Bitcoin Faces Short-Term Headwinds but Builds Long-Term Tailwinds

André Dragosch, PhD Director, Head of Research — Europe

Max Shannon Senior Research Associate

Ayush Tripathi Research Analyst

André Dragosch, PhD Director, Head of Research — Europe

Max Shannon Senior Research Associate

Ayush Tripathi Research Analyst

Overview

Chart of the Week
Performance
Sentiment
Fund Flows
On-Chain
Futures, Options & Perpetuals
Bottom Line
Appendix

Bitcoin continues to consolidate amid Fed rate cuts as $1.6 bn FTX distribution lures – Ethereum and altcoins underperform.
Our in-house Cryptoasset Sentiment Index has turned slightly bearish again. Bitcoin has essentially been mired in a choppy sideways consolidation with neither excessively bullish nor bearish sentiment since May 2025.
Chart of the Week: Historically, Fed easing cycles have tended to coincide with significant rallies in bitcoin. We maintain the view that the continuation of the Fed’s rate-cutting cycle will ultimately provide a strong tailwind for bitcoin and cryptoassets.

Chart of the Week

Performance

The Federal Reserve delivered its first 25 bps rate cut of the year – a move that was widely anticipated by markets. However, the immediate reaction of bitcoin suggests that this was more of a “sell-the-news” event, with price action remaining lacklustre so far. One reason could be the expected $1.6bn distribution of funds to former FTX creditors by the end of September, which may add temporary selling pressure to the market.

Nevertheless, we maintain the view that the continuation of the Fed's rate-cutting cycle will ultimately provide a strong tailwind for bitcoin and cryptoassets.

Historically, Fed easing cycles have tended to coincide with significant rallies in bitcoin (chart-of-the-week).

There are three major reasons for this:

Rate cuts tend to steepen the yield curve, a dynamic often associated with higher money supply growth. Bitcoin, as one of the most sensitive barometers of global monetary expansion, has historically benefited from such environments. Notably, global money supply has already reached new all-time highs and continues to trend higher.
Bitcoin has historically shown a positive correlation with market-based inflation expectations. A renewed rise in these expectations should therefore act as an additional tailwind.
Real yields are likely to decline as inflation re-accelerates, implying looser monetary policy and more accommodative financial conditions – typically supportive for BTC.

Importantly, the Fed is now cutting rates against a backdrop of deteriorating labour market indicators that appear to outweigh accelerating inflation dynamics. By lowering rates with headline inflation at 2.9%, the Fed has implicitly signalled a tolerance for a higher inflation target – likely closer to 3%.

At the time of writing, Fed Funds Futures imply an 86% probability of an additional 50 bps in cuts by year-end, in line with the Fed's “dot plot”. It is also worth noting that new FOMC board member Stephen Miran has even projected 125 bps of cuts, suggesting that a more dovish stance could gain traction going forward.

Beyond monetary policy, institutional and corporate adoption trends continue to provide supportive signals for bitcoin. Most notably, Metaplanet has announced the purchase of 5,419 BTC for $632m at an average price of $116k per bitcoin. This brings its total holdings to 25,555 BTC – marking a notable acceleration in their accumulation rate. Such moves may help lift sentiment toward Bitcoin Treasury Companies and Bitcoin more broadly.

In parallel, political momentum in the US continues to build around the concept of a Strategic Bitcoin Reserve. Dennis Porter, a leading political bitcoin advocate who has been instrumental in advancing regional reserve bills in the US, hinted at a major announcement expected this Tuesday. Should this materialise, it could add another layer of structural support to market sentiment.

In general, among the top 10 crypto assets BNB, Bitcoin, and Cardano were the relative outperformers.

Overall, altcoin outperformance vis-à-vis bitcoin has declined last week, with only 10% of our tracked altcoins managing to outperform bitcoin on a weekly basis. Ethereum also underperformed bitcoin last week.

Sentiment

Our in-house “Cryptoasset Sentiment Index” flipped negative to reflect slightly bearish trend.

At the moment, 3 out of 15 indicators are above their short-term trend.

Last week, Bitcoin Exchange outflows and the Cross Asset Risk Appetite metrics showed positive momentum.

The Crypto Fear & Greed Index currently signals a “Fear” level of sentiment as of this morning. This change is not uncommon as the index has spent the majority of the last month in between “Neutral” and “Fear”.

Performance dispersion among cryptoassets has trended up slightly last week, signalling that while altcoins have continued to be highly correlated with the performance of bitcoin, this is a metric to keep an eye on.

Altcoin outperformance vis-à-vis Bitcoin has decreased from last week, with around 10% of our tracked altcoins managing to outperform Bitcoin on a weekly basis. Ethereum also underperformed Bitcoin last week.

In general, increasing (decreasing) altcoin outperformance tends to be a sign of increasing (decreasing) risk appetite within cryptoasset markets and the latest altcoin underperformance signals a decreasing risk appetite at the moment.

Sentiment in traditional financial markets as measured by our in-house measure of Cross Asset Risk Appetite (CARA) has also increased, moving from 0.66 to 0.79. This is a notable divergence between tradfi and crypto asset sentiment that should be watched closely.

Fund Flows

While weekly fund flows into global crypto ETPs decelerated last week, inflows across Bitcoin, Ethereum, and ex-Ethereum altcoin products still suggest steady allocation. This coincides with a slight rise in performance dispersion, indicating that correlations remain high, but divergences are beginning to widen.

Global crypto ETPs saw around +1699.6 mn USD in weekly net inflows across all types of cryptoassets, after +3149.9 mn USD in net inflows the previous week.

Global Bitcoin ETPs have continued to experience net inflows totalling +903.3 mn USD last week, of which +886.6 mn USD in net inflows were related to US spot Bitcoin ETFs.

The Bitwise Bitcoin ETF (BITB) in the US experienced net outflows, totalling -29.4 mn USD last week.

In Europe, the Bitwise Physical Bitcoin ETP (BTCE) experienced net outflows equivalent to -0.7 mn USD, while the Bitwise Core Bitcoin ETP (BTC1) experienced minor net inflows of +0.3 mn USD.

The Grayscale Bitcoin Trust (GBTC) has posted net outflows of -86.1 mn USD. The iShares Bitcoin Trust (IBIT), however, experienced net inflows of around +866.8 mn USD last week.

Meanwhile, flows into global Ethereum ETPs maintained its positive trend last week, with around +749.5 mn USD in net inflows.

US spot Ethereum ETFs, also recorded net inflows of around +556.9 mn USD on aggregate. The Grayscale Ethereum Trust (ETHE), has posted net inflows of +13.6 mn USD.

The Bitwise Ethereum ETF (ETHW) in the US has also posted net inflows of +7.5 mn USD.

In Europe, the Bitwise Physical Ethereum ETP (ZETH) saw net inflows of +11.0 mn USD while the Bitwise Ethereum Staking ETP (ET32) saw minor net inflows of +0.6 mn USD.

Altcoin ETPs ex Ethereum also experienced net inflows of +81.4 mn USD last week.

Thematic & basket crypto ETPs, however, posted net outflows of -34.5 mn USD on aggregate last week. The Bitwise MSCI Digital Assets Select 20 ETP (DA20) has experienced zero flows (+/- 0 mn USD) on aggregate.

Global crypto hedge funds exposure to Bitcoin has decreased significantly last week. The 20-days rolling beta of global crypto hedge funds' performance to Bitcoin decreased to around 0.51 per yesterday's close, down from 0.68 from the week before.

On-Chain Data

Intraday Spot Buying minus Selling volume continued to be negative but has started to decelerate slightly last week with net selling volumes at approximately -$0.68 bn on bitcoin spot exchanges by week-end.

Bitcoin whales (entities that hold at least 1k BTC) have started to take bitcoins off exchanges on a net basis, indicating an increase in whale HODLing. This tends to exert buying pressure, but it is important to note that last week's trend is not as strong as previous measures recorded. More specifically, BTC whales removed -2,370 BTC to exchanges last week.

Furthermore, based on recent data from Glassnode, the overall downward trend in exchange-held Bitcoin reserves has continued its downward trend. The current level stands at 2.946 million BTC, representing approximately 14.78% of the total circulating supply - a 13 bps decrease from last week.

It's worth noting that the 30-day measure of “apparent demand” for Bitcoin remained positive and continued to reaccelerate over the past week. This is signalling a continuing influx of short-term holders as well.

All in all, on-chain metrics point to a constructive backdrop but with limited directional conviction. Slowing net selling and ongoing exchange reserve declines suggest underlying support, yet the market remains in a broad consolidation phase. Bitcoin has been trading sideways since May 2025, reflecting the absence of a clear bullish or bearish catalyst.

Futures, Options & Perpetuals

Last week, BTC futures open interest increased last week by +7.9k BTC across all exchanges and increased by +4.8k BTC on CME. Meanwhile, perpetual open interest increased by around +32.9k BTC.

BTC perpetual funding remained positive throughout last week indicating excessively bullish sentiment among traders in the perpetual futures market and a long bias.

In general, when the funding rate is positive (negative), long (short) positions periodically pay short (long) positions, which is indicative of bullish (bearish) sentiment.

The BTC 3-months annualised basis decreased last week to around 7.2% p.a., averaged across various futures exchanges.

BTC option open interest increased by around +5.8k BTC while the put-call open interest ratio decreased slightly to 0.61. We observed some spikes in the put-call volume ratio (highest occurring last Thursday) indicating an increasing appetite for downside protection during this pull-back.

Meanwhile, the 1-month 25-delta skew for BTC decreased throughout the week from +10.7% to +7.1%, signalling decreasing appetite for put options. However, the presence of a positive skew still indicates a preference for downside protection.

BTC option implied volatilities decreased slightly compared to last week, consistent with the decline in 1-month realized volatility.

At the time of writing, implied volatilities of 1-month ATM Bitcoin options are currently at around 31.8% p.a. on Deribit – still near all-time lows.

Bottom Line

Bitcoin continues to consolidate amid Fed rate cuts as $1.6 bn FTX distribution lures – Ethereum and altcoins underperform.
Our in-house Cryptoasset Sentiment Index has turned slightly bearish again. Bitcoin has essentially been mired in a choppy sideways consolidation with neither excessively bullish nor bearish sentiment since May 2025.
Chart of the Week: Historically, Fed easing cycles have tended to coincide with significant rallies in bitcoin. We maintain the view that the continuation of the Fed’s rate-cutting cycle will ultimately provide a strong tailwind for bitcoin and cryptoassets.

Appendix

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