BTC recovers above 86K as liquidity jitters ease and Fed focus

Bitcoin is rising above 87k after a volatile start to December, when the largest cryptocurrency slid 7% to 83.5k amid a renewed bout of risk aversion, before recovering to settle above 86k. 

Yesterday’s sell-off was the latest leg lower in a downtrend that dominated November, a typically bullish month for crypto. Instead, the 17% monthly decline represented the worst monthly selloff in four years. Furthermore, seasonality suggests a red November, which is often followed by a red December. 

Concerns over the unwinding of the yen carry trade were the catalyst for yesterday’s drop. Hawkish comments from BoJ Governor Ueda boosted expectations of a rate hike this month, while Japanese government bond yields have risen sharply, with the 10-year JGB yield at a 17-year high. This raises concerns about repatriation of capital to Japan, sucking liquidity from the market.  Crypto and tech stocks are particularly sensitive to liquidity flows. The tech-heavy Nasdaq closed lower.  The BoJ hiked rates in March 2024 and July 2024. After each hike, BTC plunged. The odds of a December hike are at 81%.  

Liquidity worries ease for now 

However, it is worth noting that a successful Japanese bond auction overnight has helped calm these fears at least for now. Furthermore, the Fed ended its QT programme yesterday and injected $13.5 billion in liquidity into the financial system overnight, which could help support BTC prices. 

Sticking with the Fed, weak US ISM manufacturing data yesterday helped support expectations of a Fed rate cut. The market is pricing in an 87% probability of a rate cut next week. The December FOMC meeting could be critical for BTC's trajectory into the end of the year. Should the Fed cut rates and hint at further reductions in 2026, BTC could stage a recovery towards 100k. However, a hawkish cut could add further pressure on crypto. 

BTC ETFs see modest inflows 

Bitcoin ETFS are turning positive, but only just $8.48 million, a fourth consecutive day of inflows, but volumes need to ramp up considerably to support a solid recovery in BTC. BTC ETFs saw $3.48 billion in net outflows in November, the second-worst month on record. 

Strategy also purchased an additional 130 BTC for $11.7 million, bringing the total holdings to 650,000. However, Digital Asset Treasuries experienced the slowest month of the year in November. Data from DefiLlama showed that November DATs saw $1.32 billion in inflows, a 34% decline from October and an 88% decline from September.  

BTC/USDT technical analysis 

After hitting a record high of 126.2k, BTC trades within a descending channel, dropping to a low of 80.5k. The recovery from this low faced rejection at 93k, the upper band of the descending channel, and rebounded lower to 84k. Although the price settled above 85k, the 78.6% Fib retracement of the 74.4k low and 126.2k high. The RSI is below 50. 

To extend the bearish trend, sellers will need to break convincingly below 85k to test 80k. A break below the 7-month low opens the door to 74.4k, the 2025 low. 

Any recovery needs to rise above 93k, the round number and upper band of the falling channel. A rose above her brings 94.3k, the 61.8% Fib retracement level into focus ahead of 100k. A rise above here negates the downtrend.