Woofun AI reports that the recent Bitcoin rally is driven primarily by sentiment recovery rather than a fundamental trend reversal, a dynamic highlighted by Blockchain Knight. The market’s fragile state is defined by its struggle to maintain momentum ahead of the Federal Reserve’s interest rate decision meeting, where expectations of a policy shift continue to overshadow technical gains.

Price action reveals significant weakness, with Bitcoin failing to sustain levels above $65,000 and retreating from the $66,000 threshold. Trading volume has contracted by nearly half compared to the peak of the rally, indicating a lack of conviction among participants. The market has entered a wait-and-see mode, with all attention fixed on the Federal Reserve’s interest rate decision meeting scheduled for early Thursday morning.

The initial catalyst for the price increase was a temporary ceasefire in the US-Iran conflict, which caused crude oil prices to drop and eased geopolitical tensions that had previously suppressed risk assets. This relief allowed Bitcoin to rally from low levels, but the foundation of this move remains shallow. The absence of sustained buying pressure suggests that the geopolitical calm has not translated into structural demand for digital assets.

Fundamental flows further undermine the rally’s validity, as US spot Bitcoin ETFs experienced net inflow during the first three days of last week.

However, heavy outflows totaling $240 million per day in the latter half of the week nearly erased the entire weekly inflow. This divergence between price action and institutional capital flows highlights the speculative nature of the recent upward movement.

Woofun AI data shows that macro uncertainty is dominated by the CME Federal Reserve Watch tool, which indicates a 70% probability that interest rates will remain unchanged at 3.50%-3.75%, while a 30% chance exists for a 25 basis points hike. Although June’s CPI data fell to 3.5% and core inflation dropped to 2.6%, recent rebounds in energy prices pose a risk of renewed inflationary pressures. Chair Walsh’s data-driven approach adds complexity, as his forward guidance may signal further tightening despite current stability.

June’s dot plot revealed that over half of officials expect further rate hikes this year, increasing the potential for negative market reactions. If Chair Walsh emphasizes supply disruptions in energy markets or hints at a rate hike in September, U.S. Treasury yields and the dollar could strengthen. Less than 24 hours after the decision, GDP and core PCE data for the second quarter will be released on Thursday evening, creating a double-negative effect if macroeconomic figures disappoint.

Technically, $62,500 serves as the critical support line since the rally started in July; a break below this level would disrupt the structure established at the start of the month and push the market into a weak range. The next major test is the $60,000 psychological barrier, which has held multiple times this year. Options data reflects lingering caution, with the short-term bear-to-bull ratio dropping from 0.76 at the end of June to 0.52, while the long-term skew for 3-6 months remains above 11%, signaling unresolved medium- to long-term risks.

The Middle East issue will not be resolved overnight, ensuring that the market will likely fluctuate widely until the Federal Reserve makes its decision. A clearer direction may emerge by Wednesday night, but given the current market conditions, it appears the market has already made its choice in advance, warranting significant caution.