Fed Rate Cuts and Bitcoin's Divergence: Why BTC Remains Bearish Amid Easing Policy Expectations?

The Federal Reserve’s anticipated rate cuts in Q3 2025 have created a paradox in the crypto markets: while easing monetary policy typically fuels risk-on sentiment, Bitcoin (BTC) has defied expectations, remaining bearish despite favorable macroeconomic conditions. This divergence between macroeconomic signals and technical breakdowns raises critical questions for investors. Let’s dissect why BTC continues to underperform, even as the Fed signals dovish pivots.

Macro Signals: A Fed on the Brink of Easing

The Federal Reserve’s Q3 2025 policy decisions reflect a cautious balancing act. With inflation easing to 2.1% (12-month PCE) and unemployment rising to 4.2%, the Fed has maintained the federal funds rate at 4.25–4.5% while signaling a 90.3% probability of a 25-basis-point cut in September [1]. Markets are pricing in further cuts in October and December, driven by weak labor data (July nonfarm payrolls at 73,000) and sub-50 PMI readings [2].

This dovish pivot should, in theory, boost Bitcoin. Historically, rate cuts have increased liquidity and reduced capital costs, making BTC an attractive hedge against currency devaluation. For instance, the People’s Bank of China’s 1.5 trillion yuan reverse repo injections in Q3 2025 have already boosted global liquidity, indirectly supporting crypto demand [3]. Moreover, Bitcoin ETFs have seen $3.5 billion in net inflows over 12 consecutive sessions in June 2025, underscoring institutional confidence [4].

Yet, BTC’s price action tells a different story.

Technical Breakdown: Bearish Divergence and Structural Weakness

Bitcoin’s technical indicators paint a starkly bearish picture. The Relative Strength Index (RSI) has shown bearish divergence, with the oscillator declining despite price rallies—a classic precursor to trend reversals [5]. A confirmed head-and-shoulders pattern at $113,000 further signals a potential breakdown, with the neckline at $100,000 acting as a critical support level [6].

Key support levels are under pressure. On the four-hour chart, the 50-day and 200-day moving averages are declining, signaling short-term weakness. If BTC falls below $100,000, the next targets are $92,000 and $75,000, with the latter mirroring a 2025 tariff-related dip [7]. The 200-week moving average (200WMA) is approaching $50,000, and a breach could trigger a prolonged bearish phase akin to the 2018–2022 cycle, which saw a 77% drawdown [8].

On-chain metrics reinforce this narrative. The Realized Price trades at an 11.3% discount to spot prices, a pattern last seen during the 2021–2022 bear market capitulation [9]. Meanwhile, the Value Days Destroyed (VDD) Multiple shows long-term holders accumulating BTC, but this has yet to translate into a sustained rally [10].

The Divergence: Why BTC Ignores the Fed’s Easing

The disconnect between macroeconomic optimism and BTC’s bearish technicals stems from three factors:

1. Seasonal Weakness and Market Psychology
   September has historically been a weak period for Bitcoin, with an average return of -3.77% since 2013 [11]. This “Red September” phenomenon, driven by tax-loss harvesting and reduced summer liquidity, has amplified short-term selling pressure. Even as the Fed signals cuts, institutional portfolio rebalancing and retail caution have kept BTC in a downtrend.

2. Geopolitical Uncertainty
   The expiration of Trump’s 90-day tariff freeze in July 2025 reignited trade tensions, introducing volatility that has spooked investors [12]. Tariff hikes on Chinese imports, in particular, have disrupted global supply chains, dampening risk appetite and overshadowing the Fed’s dovish stance.

3. ETF Outflows and Liquidity Constraints
   While ETF inflows in Q2 2025 were robust, August saw net outflows as institutional players adopted a wait-and-see approach ahead of the September rate decision [13]. This liquidity contraction has limited BTC’s ability to capitalize on Fed-driven optimism, especially with the U.S. Dollar Index (DXY) weakening to a 52-week low of -0.25 [14].

What’s Next for Bitcoin?

The coming weeks will be pivotal. A successful Fed rate cut in September could trigger a short-term rebound, particularly if BTC breaks above $116,000 and retests the $124,500 July high [15]. However, sustained bullish momentum will require a retest of the $108,500 zone and a decisive close above the 200WMA.

Conversely, a breakdown below $100,000 could accelerate a bearish cascade, with $75,000 becoming a long-term target. Investors should monitor the CME gap between $114,000 and $116,000: a fill of this gap would test the market’s resilience, while a retest of $108,500 would confirm the downtrend [16].

Conclusion

Bitcoin’s bearish divergence from Fed easing underscores the complexity of macro-technical interplay. While the Fed’s dovish pivot and rising global liquidity provide a bullish backdrop, structural weaknesses—seasonal trends, geopolitical risks, and liquidity constraints—have kept BTC in a downtrend. For now, the market remains in a precarious balancing act, with the September rate decision and subsequent policy clarity likely to determine the next chapter in Bitcoin’s Q3 saga.

Source:
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