Bitcoin May Recover Before The First Rate Cut

Bitcoin may not need to wait for central banks to officially cut their rates to regain a more favorable environment. According to Binance Research, BTC reacts more to the slowdown of global monetary tightening than to the absolute level of rates, which could allow it to anticipate the next cycle change.

Eight Central Banks Still Tightening, But Momentum Weakens

Eight of the ten G10 central banks followed by Binance Research have raised their rates over the past six months. The other two have kept theirs steady, with none cutting them. The monetary diffusion index calculated by Binance thus remains high at 0.8.

This measure does not only count the hikes. It observes the proportion of central banks tightening their policy relative to the situation six months prior. After reaching a peak in July, the speed of the tightening’s spread is starting to decline.

Several data points summarize this shift in momentum :

• Eight G10 central banks have raised their rates in six months ;
• The diffusion index remains high at 0.8 ;
• Its momentum peaked near 1.1 in July ;
• It could decline toward 0.3 by January 2027 if no new decisions are made ;
• Its correlation with Bitcoin’s six-month returns has been −0.62 since 2021.

This negative correlation means Bitcoin generally performed better when tightening stopped expanding to new countries. However, it does not prove monetary policy alone determines its price.

Binance Research summarizes :

For BTC, the speed at which tightening spreads matters more than its extent.

The market can thus remain faced with high rates while benefiting from a progressively less hostile environment.

This distinction is important. A rate cut directly injects a new positive signal, but merely stopping their spread already reduces the risk of further tightening of financial conditions.

Bitcoin Reacts to the Turn Before the First Rate Cut

The previous cycle illustrates this mechanism. Bitcoin hit its low in November 2022 while the global tightening index was still near its peak. Its six-month performance then turned positive in February 2023 before the central banks studied began cutting rates.

The market thus did not wait for an officially accommodative policy. It reacted to the gradual absence of new negative monetary surprises.

The reverse momentum occurred in 2024. When easing spread quickly among major economies, Bitcoin posted its best six-month performance of the cycle in March, exceeding 160%. For Binance Research, BTC followed “the direction of global policy, not its level”.

This perspective offers a different angle for investors who only await the Fed’s first rate cut. At this stage, liquidity can start improving well before this decision, especially if central banks successively stop raising credit costs.

The signal remains fragile, however. The study covers a period starting in 2021 and includes few full cycles. The correlation of −0.62 is meaningful, but does not fully account for flows to ETFs, regulations, sector-specific crises, or variations inherent to Bitcoin’s supply.

The Fed Can Delay the Signal Without Necessarily Canceling It

US policy is the main obstacle to this scenario. Christopher Waller, Federal Reserve governor, indicated leaning toward a 25 basis point hike in December. He might even consider 50 points if core inflation remains high.

After his statements, the implied probability of a 25 basis point hike in December rose from 76.3% to 96.3% according to the CME.

Another US hike would maintain pressure on bond yields and the dollar. It could also slow flows to Bitcoin ETFs, while investors have a high yield on less volatile assets.

However, it would not necessarily restart global tightening. If other central banks remain on hold, the diffusion index could continue to decelerate despite the Fed’s decision. Its effect would then concentrate more on US markets than on overall global liquidity.

Bitcoin is currently around $73,400 at the time of the analysis publication, down 3.5% over a week and 41% from its record close to $126,200. The slowdown in tightening is therefore not yet a confirmed recovery signal.

The coming months will decide between two opposing forces: a still restrictive Fed and a global cycle gradually weakening. For Bitcoin, the real turning point may not be at the first rate cut, but when the last wave of hikes stops spreading.