Bitcoin’s traditional October rally encounters liquidity challenges with potential Federal Reserve rate cuts on the horizon

Bitcoin’s traditional “Uptober” uptrend, a period often associated with notable gains, is facing doubt this year as the crypto market saw declines in early September, even after the Federal Reserve’s initial interest rate cut for 2025. The Fed’s 25 basis point decrease, lowering the benchmark rate to 4.00%-4.25%, initially propelled

to surge to $118,000 before pulling back. Experts link this market turbulence to seasonal cycles, shifting liquidity, and mixed signals from the broader economy.

Historically, September has been a challenging month for Bitcoin, with CoinGlass data indicating an average -3.77% return since 2013. This year followed suit, as Bitcoin slid 13% from its August high of $124,000. Some downward pressure was eased by institutional factors like the January 2024 introduction of U.S. spot Bitcoin ETFs. Yet, the U.S. Treasury’s efforts to replenish the $850 billion Treasury General Account (TGA) tightened market liquidity even further. Arthur Hayes, the former BitMEX CEO, pointed out that this “liquidity drain” temporarily weighed on risk assets until the TGA refill was nearly complete.

The optimism surrounding “Uptober” is based on past data showing Bitcoin climbing in October in six out of the last twelve years. Analysts such as Lark Davis note that, except for the 2022 bear market, each September FOMC meeting since 2020 has been followed by a strong October rally. Still, the current environment adds more variables. The TGA refill, which drew $400 billion from the financial system, happened alongside a 1.4% slide in the Nasdaq and a retreat in Bitcoin to $113,500. Meanwhile, the Fed’s shift to a dovish stance—including projections for two more rate cuts by year-end—has revived expectations for a liquidity-driven recovery.

Analysts are divided on the outlook. Those optimistic about Bitcoin highlight its link to global liquidity, with $7.2 trillion in money market funds and $2 trillion in fixed income ETFs potentially entering riskier assets if yields decrease. Matt Mena from 21Shares suggested that falling yields may encourage capital flows into Bitcoin. On the other hand, skeptics such as Augustine Fan from SignalPlus warn that subdued volatility, profit-taking, and sluggish ETF inflows could cap gains. BitMEX’s Hayes, however, maintains that renewed liquidity after the TGA refill and an ongoing Fed easing cycle could restore a strong upward trend.

Market developments add to the complexity. While Bitcoin consolidated above $116,000,

and experienced downward pressure, with ETH slipping under $4,300 and XRP falling to $3.00. Increased whale activity and ETF outflows further fueled negative sentiment, with some analysts forecasting ETH could test $3,350. Nevertheless, the broader market tone is cautiously positive. The Fed’s rate reductions, combined with $6.3 trillion in net liquidity, may set the stage for a rally later in the year. Should Bitcoin regain key moving averages and cross the $119,000 mark, CoinDesk’s technical outlook suggests it could aim for $120,000–$121,000.

Amid these shifting dynamics, the coming weeks will challenge the “Uptober” story. With the Fed’s next rate announcement expected to conclude 2025’s easing phase and TGA liquidity moves progressing, Bitcoin’s results will depend on whether institutional demand and macroeconomic steadiness can overcome seasonal and short-term market swings.