Why Bitcoin Might Be Undervaluing the Chances of a January Rate Reduction

Bitcoin’s Stagnant Price and Market Sentiment Ahead of Inflation Data

Bitcoin’s recent lack of price movement and historically low volatility may indicate that investors are not fully accounting for changing expectations regarding Federal Reserve policy, according to market analysts. This could mean the cryptocurrency is not accurately valued as crucial inflation figures approach.

Analysts warn that the market may be exhibiting too much confidence and not enough caution. Quinn Thompson, Chief Investment Officer at Lekker Capital, commented on social media that the risk surrounding the upcoming Consumer Price Index (CPI) release appears unbalanced, especially since traders are pricing in about a 60% probability that the Fed will not implement further rate cuts under Chair Jerome Powell.

Thompson also noted that the estimated 75% chance of only a single rate cut before the U.S. midterm elections seems underestimated, particularly with Stephen Miran—recently nominated by Donald Trump to the Federal Reserve—potentially influencing future policy decisions.

Currently, Bitcoin has slipped by 1.2% in the past day, trading at $91,150 based on CoinGecko’s data. The leading cryptocurrency has been confined to a narrow range between $90,000 and $94,000 for nearly two months.

Meanwhile, Bitcoin’s Implied Volatility Index, which measures expected price fluctuations, remains near 43—at the lower end of its multi-year spectrum. This suggests that traders anticipate little market movement and that the pricing of rate cut probabilities may be similarly misaligned.

Sean Dawson, head of research at Derive, echoed these concerns, stating that the likelihood of a rate cut is being underestimated by the market. The CME FedWatch tool currently assigns only a 5% chance to a rate reduction at the January 28 meeting. “In my view, the odds are at least 10%,” Dawson remarked in an interview with Decrypt.

Dawson pointed to mixed economic signals to support his view: the U.S. economy added just 50,000 jobs in December—the weakest annual job growth since 2003—while core inflation remains stuck at 2.6%, above the Federal Reserve’s target. These numbers, affected by tariffs and last year’s government shutdown, make the upcoming CPI report especially significant.

Political factors are also adding to the uncertainty. The Department of Justice’s criminal case against Fed Chair Jerome Powell highlights the extraordinary political pressure facing the central bank.

Derek Lim, head of research at crypto market maker Caladan, told Decrypt, “The charges against Powell demonstrate that Trump is prepared to challenge any Fed official who opposes his stance on rate cuts. The government’s attempt to exert control over the Federal Reserve is unprecedented.”

Analysts believe the current environment sets the stage for a significant price move. Should inflation data prompt the Fed to maintain a hawkish stance, Bitcoin may continue to trade within its current range. However, a weaker inflation reading could surprise the market and trigger a sharp rally in Bitcoin’s price.