Bitcoin (BTC) Outlook: Low Volatility and Strong Demand vs. Carry Trade Risks

BTC Holds Above $115,000 Despite Central Bank Risks

Bitcoin (BTC) held above the crucial $115,000 level for a third consecutive session, eyeing a three-week winning streak.

On Saturday, September 20, Bitcoin rose 0.07%, partially reversing the previous day’s 1.13% loss, to close at $115,860.

The US Federal Reserve and the Bank of Japan failed to spook investors, despite the looming threat of a yen carry trade unwind.

The FOMC Economic Projections signaled two further rate cuts in Q4. Meanwhile, the Bank of Japan announced plans to reduce its Japanese Real Estate Investment Trusts (JREITs) and exchange-traded funds (ETFs) holdings, a further move toward monetary policy normalization. While the BoJ kept interest rates at 0.5% on Friday, September 19, two policymakers voted in favor, signaling an October rate hike.

Fed-BoJ Divergence: Implications for BTC?

Multiple Fed rate cuts in the fourth quarter and a BoJ rate hike in October could narrow the US-Japan interest rate differential, strengthening the yen. A stronger yen could pressure traders to unwind positions in risk assets, including crypto, to clear yen loans, crashing USD/JPY.

In July 2024, the BoJ unexpectedly hiked interest rates by 25 basis points and cut its Japanese Government Bond (JGB) purchases. The decision coincided with expectations of multiple Fed rate cuts through Q4 2024, mirroring sentiment toward the upcoming fourth quarter.

USD/JPY tumbled from 155.216 (July 31) to 139.576 (September 14). The surge in yen strength and the ensuing carry yen trade unwind sent BTC crashing from $66,237 (July 31, 2024) to $49,351 (August 4).

BTC’s 1.13% loss on Friday, September 19, coincided with Japan’s Nikkei 225, falling from a new record high to end the session down 0.57%. Investor concerns about a potential carry trade unwind weighed on demand for Japanese stocks.

Institutional Demand Supports BTC

Will BTC repeat its July crash? Despite the risk of market disruption from central bank policy divergence, institutional demand remained robust.

The US BTC-spot ETF market extended its inflow streak to three weeks in the week ending September 19, sending BTC above $115,000. According to Farside Investors, the US BTC-spot ETF market reported total net inflows of $886.5 million, taking September’s net inflows to $3.46 billion.

BlackRock’s (BLK) iShares Bitcoin Trust (IBIT) reported weekly net inflows of $866.8 million, continuing to dominate the crypto-spot ETF markets.

US Economic Calendar in Focus

Looking ahead, it could be another crucial week for BTC. US economic data, Fed Chair Powell, and the Bank of Japan will be in focus.

Weaker US services sector activity, rising jobless claims, and softer-than-expected inflation could lift bets on multiple Fed rate cuts in the fourth quarter. BTC could face selling pressure if the BoJ signals an October rate hike, which may trigger another yen carry trade unwind.

Conversely, fading expectations for multiple Q4 policy adjustments could ease the threat of a carry trade unwind. However, a less dovish Fed rate path may limit gains, subject to BTC-spot ETF flows.

It could be a key test for BTC, which has enjoyed reduced volatility, boosting institutional demand.

Crypto commentator Joe Consorti commented:

“Bitcoin has now spent a combined 67 days above $110k with remarkably low volatility. In 2021, BTC only spent 40 days above 60k with extreme volatility. Bitcoin’s maturation as an asset within such a short window is nothing short of astounding.”

Low volatility, a dovish Fed policy stance, and rising institutional demand could create a perfect storm, potentially mitigating risks of a yen carry trade unwind.

Consorti recently hinted at fresh highs, stating:

“Bitcoin has historically risen 29.23% in October. That would imply a price of $150,000. Time will tell.”

ETH Dips Below $4,500 as September ETF Inflows Slow

While Bitcoin held above $115,000 on strong institutional demand, Ethereum (ETH) faced selling pressure this week, pulling further back from August’s record high of $4,958.

Despite rising 0.24% on Saturday, September 20, ETH is down 2.69% for the current week. Waning inflows into US ETH-spot ETFs have tempered bullish sentiment.

The US ETH-spot ETF market reported total net inflows of $418.3 million in the current month. Unless there is a surge in demand, monthly inflows will be significantly lower than those in July ($4.86 billion) and August ($3.87 billion).

Explore our ETF flow deep-dive to see which tokens are winning the most capital.

Key Drivers for BTC Price Outlook

Several macro and market factors will drive BTC’s near-term outlook:

• Legislative news: the Market Structure Bill’s progress on Capitol Hill.
• US economic data: US Services PMI, Jobless Claims, and Personal Income and Outlays report.
• Fed Chair Powell and FOMC member speeches.
• US BTC-spot ETF flows.

BTC Price Scenarios:

• Bullish Scenario: Easing US recession risks, softer inflation, dovish Fed rate cues, bipartisan support for the Market Structure Bill, and ETF inflows. These factors could send BTC toward its record high of $123,731.
• Bearish Scenario: Rising US stagflation risks, hawkish Fed rhetoric, legislative roadblocks, a yen carry trade unwind, or ETF outflows could push BTC toward $100,000.

Technical Analysis

Bitcoin Analysis

BTC trades above the 50-day and the 200-day Exponential Moving Averages (EMA), suggesting bullish momentum

• Upside Target: A breakout above the September 18 high of $117,937 could pave the way toward the $120,000 level. A sustained move through $120,000 may enable the bulls to target the record high of $123,731.
• On the downside, a drop below $115,000 and the 50-day EMA could expose the crucial $100,000 psychological floor.

Track BTC and ETH market trends with our real-time data and insights here.

Ethereum Outlook ETF Demand

Turning to Ethereum (ETH), the token remains above its 50-day and 200-day EMAs, despite the week’s losses, signaling a bullish bias.

• Upside Target: Reclaiming $4,500 could enable the bulls to target $4,750. A sustained move through $4,750 may pave the way toward the all-time high of $4,958.
• On the downside, a drop below the 50-day EMA could bring the $4,085 support level into play. If breached, $3,563 would be the next key support level.

Stay informed on BTC and ETH trends by tracking macroeconomic developments, ETF flows, and technical indicators here.