Cryptocurrencies on tepid recovery after finding a floor

Bitcoin, Ether struggle for direction ahead of FOMC  

Bitcoin is attempting a fragile recovery from recent market-bottom lows, currently paring gains as markets face two‑sided risks. Traders are reducing exposure ahead of Wednesday’s Fed decision under new Chair Kevin Warsh, while also assessing the details of the interim US‑Iran peace deal due for signing on Friday.

Rate expectations have shifted, with a December hike no longer fully priced in – a tailwind for crypto – though any hawkish rhetoric given persisting inflation concerns could weigh on sentiment. Meanwhile, the boost from easing geopolitical tensions – which pushed prices to two‑week highs – has faded, limiting catalysts for now to lift Bitcoin back toward more comfortable levels above $75,000.

Bitcoin and Ether are both down more than 10% this month following the sharp early-summer selloff. While both rebounded from early June lows – by 12% and 18% respectively, prices remain near April lows, underscoring the broader fragile sentiment.

Institutional demand stays weak despite rebound

Despite the mild recovery, ETF flows remain weak. Bitcoin ETFs have recorded roughly $5.8 billion in net outflows over the past month, signalling continued institutional caution. Ether funds saw outflows of around $614 million, reinforcing the lack of sustained demand.

This reflects a backdrop where institutional participation has not only stalled but shifted back into persistent net selling.

AI steals the limelight

This unwind – marking one of the sharpest outflow stretches since ETF inception – coincides with a broader rotation in risk appetite, as capital shifts toward AI equities and high-profile IPOs like SpaceX.

The shift is underscored by the surge in tech-linked wealth, with reports noting SpaceX’s Elon Musk’s net worth has climbed to around $1.4 trillion, exceeding Bitcoin’s roughly $1.3 trillion market capitalization, highlighting how attention and capital are tilting toward AI-driven narratives.

Meanwhile, Strategy’s Michael Saylor, a key corporate Bitcoin holder, also argues the current “AI summer” is diverting capital from crypto, though he expects flows to eventually rotate back once enthusiasm moderates.

Yet for now, Bitcoin remains roughly 48% below its October peak, despite record global liquidity – creating an unusual divergence. The key question is whether Bitcoin breaks from its historical link to liquidity or eventually realigns as macroeconomic conditions evolve.

FOMC pattern points to downside risk

Recent price action (as seen in the 2025-to-date chart) suggests a consistent “sell‑the‑Fed” pattern. Bitcoin has typically weakened after FOMC meetings, averaging declines of around 11% in the week following decisions – despite an environment that included rate-cut expectations, effectively defying a cycle that would normally have supported risk assets.

This dynamic appears structural. Positioning tends to build ahead of meetings, leaving markets vulnerable to profit-taking and liquidations once the decision is released. Since their launch in 2024, ETF flows during these periods have also remained weak, amplifying downside risks.

Warsh adds uncertainty

The upcoming meeting introduces additional uncertainty as investors assess how new Fed Chair Kevin Warsh will balance growth risks against persistent inflation. A hawkish tone could reinforce expectations of higher rates for longer, maintaining pressure on crypto.

Post-decision risks: Can Bitcoin hold key support?

Bitcoin is attempting to stabilise near the 20-day SMA around $65,500, though the RSI near 40 signals limited bullish conviction, suggesting the rebound remains corrective. As long as the price holds within the $63,500-$65,000 support zone, the short-term recovery remains intact.

As noted, historical trends suggest post-FOMC positioning remains a key headwind. However, unlike prior rallies, Bitcoin has already rebounded roughly 12% from recent lows into the meeting, indicating that long positioning has been rebuilt.

With a rate hold largely priced in, upside may remain capped near the $67,000-$68,000 resistance zone, while a hawkish outcome could expose downside risks toward a retest of the $60,000 support area as positions unwind.

Bottom found – Or just a pause? 

All said, the current recovery remains tentative, characterised by weak conviction and thin flows, while structural headwinds persist. Notably, regulatory risks are re-emerging at a fragile moment, with Binance preparing to scale back services in parts of the EU amid licensing uncertainty – potentially constraining market access and reinforcing institutional caution.

So, has Bitcoin found a floor or is further downside ahead? Historically, bottoms tend to form when sentiment is weak, flows deteriorate, and clear catalysts are absent – conditions that are increasingly present.

At the same time, the search for signs of stabilisation has intensified following Bitcoin’s drop below the yearly low to $59,100 last week. For now, the market appears to be in a “wait-and-see” mode, with direction likely to hinge on incoming macro signals and whether confidence can sustainably rebuild.