Bitcoin Faces Volatility Risk as Leverage Declines Ahead of Fed Decision

Bitcoin’s derivatives market is showing signs of caution as traders prepare for two major events that could determine the next move in crypto. Open interest has fallen 13.5% over the past 10 days, dropping from 321,497 BTC to 278,151 BTC, while Bitcoin’s price has declined by only about 5%.

The larger reduction in open interest suggests traders have been actively cutting leveraged exposure rather than simply responding to Bitcoin’s price decline.

Bitcoin is trading below $77,000 after reaching a September 3 high of $82,300. The token has been relatively flat over the past 24 hours, putting the $76,000-$77,000 area under close watch.

The key question is whether the recent deleveraging has removed enough excess risk to allow Bitcoin to build support in that zone. If demand remains weak, however, pressure could shift toward the spot market and exchange-traded fund flows.

CLARITY Act Faces First Full Senate Test

Bitcoin traders are heading into a major regulatory catalyst as Senate Majority Leader John Thune has scheduled a cloture vote on the CLARITY Act for 2:15 p.m. Eastern today.

The vote represents the first full-Senate test of the proposed crypto market-structure legislation. Republicans control 53 Senate seats, meaning the bill would need at least seven Democratic votes to advance if every Republican senator supports it. Any Republican opposition would increase the number of Democratic votes required.

The 630-page revised draft released September 10 incorporates more than 114 provisions requested by Democrats. It also creates a registration category for “non-decentralized” DeFi protocols where identifiable operators oversee consensus rules or other key functionality.

Distributed ledger technology and raw software code are explicitly excluded from that category.

Fed Expectations Shift Toward a Rate Hike

Monetary policy is adding another layer of uncertainty. The Federal Reserve’s next rate decision is expected within 72 hours of the current market snapshot.

Futures markets assigned a 70% probability to a 25-basis-point hike on September 10, up from 52.2% a month earlier. The repricing marks a significant shift away from the rate-cut expectations that had supported previous crypto positioning.

A higher probability of tighter monetary policy could keep pressure on risk assets, including Bitcoin, particularly if the Fed delivers a more hawkish message than markets expect.

Traders Cut Leverage Before the Events

The timing of the open-interest decline is important. Bitcoin derivatives positions have fallen by 43,346 BTC before either the CLARITY vote or Fed decision has taken place.

That suggests traders are reducing risk ahead of the catalysts rather than being forced to unwind positions following a major market shock. With both events carrying potentially significant outcomes, market participants appear unwilling to maintain elevated leverage.

Spot flows are also worth monitoring. BlackRock’s iShares Bitcoin Trust recorded $19.23 million in redemptions on September 11, its largest single-day outflow among U.S. spot Bitcoin ETFs that day.

The withdrawal was small relative to IBIT’s $60.6 billion in reported assets, accounting for roughly 0.03%. Nevertheless, the concentration of Bitcoin ETF assets means changes in flows can have an outsized effect on the underlying market.

The impact was especially visible in August, when three weeks of ETF inflows totaling $3.8 billion helped Bitcoin climb from roughly $63,000 to $81,700.

The same relationship could work against Bitcoin if ETF demand continues to weaken, particularly with the market’s available spot supply remaining relatively constrained.

Bitcoin Tests a Key Support Area

Technical indicators offer a mixed outlook. TradingView’s weekly reading remains at buy, supported by constructive long-term signals, while several shorter-term indicators remain neutral.

InvestTech’s overall rating is hold, although its one-to-six-week signal has turned negative. The model points to a break from a horizontal channel and identifies support around $77,200.

The $76,500 level could prove particularly important. A decisive move below it would strengthen the case for additional downside, while holding above the level could help preserve the current range.

On-chain analyst Garrett Jin estimates a 70% probability that $60,000 will mark Bitcoin’s cycle bottom, leaving considerable room for further volatility if the current support structure breaks.

For now, the market appears to be taking a defensive approach. Leverage has declined, ETF-linked spot exposure has weakened and traders are keeping capital available ahead of the week’s major events.

Rather than betting aggressively on a specific outcome, Bitcoin traders appear to be waiting for the CLARITY vote and Fed decision to provide the next directional signal.