Bitcoin's Range-Bound Dilemma: Fed Cut Hopes vs. Volatility Loom

Crypto markets saw renewed strength as traders anticipate a U.S. Federal Reserve rate cut later this month, with expectations of lower borrowing costs lifting risk appetite. Bitcoin (BTC) rose to nearly $113,000, having gained approximately 0.44% in the past 24 hours as of Monday. Meanwhile, the broader market sentiment, reflected in volatility indicators and derivatives positions, suggests heightened uncertainty following the expected policy shift [1].

The CME FedWatch tool shows a 100% probability of a rate cut at the Fed’s September 17 meeting, with a 25-basis-point reduction expected and a 10% chance of a larger 50-basis-point cut. However, October VIX futures—used to gauge market expectations of volatility—indicate that investors are bracing for increased turbulence after the central bank acts. These futures trade at a significant premium to September contracts, signaling that traders are currently discounting risk ahead of the decision but expect it to rise once the rate cut is priced in [1].

Bitcoin’s market behavior continues to align closely with broader equity market dynamics. Since November 2024, the correlation between Bitcoin’s spot price and its 30-day implied volatility indices has turned negative, while its volatility indices—BVIV and DVOL—have reached record-high correlations with the VIX. This underscores a growing alignment between Bitcoin and traditional market volatility patterns, especially during periods of uncertainty [1].

Despite these positive macroeconomic signals, Bitcoin’s price has remained range-bound near $110,000. Analysts attribute the stall to institutional profit-taking and relatively flat ETF flows. The recent soft U.S. jobs data—showing 22,000 nonfarm payrolls added in August—further supports the case for a dovish policy shift. However, markets have already priced in much of the expected easing, and without stronger ETF inflows or broader liquidity expansion, the $120,000 level remains a challenging psychological barrier [2].

Market participants are closely watching both on-chain and off-chain developments. On-chain metrics show stablecoin supply near record highs, which could support potential rallies, while exchange balances for Bitcoin and Ethereum continue to decline, reducing near-term selling pressure. Off-chain, regulatory developments—such as the U.S. Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) pushing for harmonized frameworks—remain key drivers of investor sentiment [2]. Traders are also advised to monitor the U.S. initial jobless claims report, which will be released shortly after the Fed’s meeting and could influence market direction.

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[1] BTC, Stocks News: Calm Ahead of Fed Rate Cut, Storm Later (https://www.coindesk.com/markets/2025/09/08/market-storm-likely-after-september-fed-interest-rate-cut-vix-suggests)

[2] Bitcoin stalls around $110000; Fed rate cut may not spark ... (https://www.theblock.co/post/369743/bitcoin-rate-cut-may-not-spark-rally)