The financial world is abuzz following a dramatic shift in expectations for the Federal Reserve. According to the CME FedWatch Tool, there's now a better than 70% chance that the Fed will implement a 25 basis point rate cut at its upcoming December 9-10 meeting. This would see the target range for the federal funds rate drop from 3.75%-4.00% to 3.50%-3.75%. This development marks a significant turnaround, especially considering that just days prior, the probability of such a cut hovered around a mere 30%.
What triggered this sudden change of heart in market sentiment? The catalyst appears to be recent comments from New York Fed President John Williams. On November 21, Williams indicated to reporters that the Fed could indeed trim rates "in the near term" without jeopardizing its 2% inflation target. His remarks provided a much-needed signal that the central bank might be more dovish than previously assumed, particularly after a period of government data blackouts and more hawkish commentary from other Fed officials.
For Bitcoin (BTC) enthusiasts and the broader cryptocurrency market, this potential rate cut carries immense weight. The crucial question now is whether this growing conviction for a December easing will be enough to pull Bitcoin out of its recent defensive posture, or if the macro tailwind arrives too late for a market grappling with deleveraging and declining ETF flows. In the immediate aftermath of this news, Bitcoin experienced some volatility, initially dipping from $91,554.96 to $80,600 before recovering slightly to $84,116.67. This price action has left investors pondering whether BTC has already hit its local peak for this cycle at $126,000, and if there's sufficient momentum left for further upward movement.
The Pivotal Role of Real Yields and Liquidity
The connection between Federal Reserve policy, real yields, and overall market liquidity is critical for understanding Bitcoin's trajectory. A rate cut by the Fed translates directly into lower real yields and an expansion of global liquidity. Over the past couple of months, inflation-adjusted Treasury returns had been climbing as markets priced out the likelihood of easing. This rise in real yields tends to draw capital away from higher-risk, zero-yielding assets like Bitcoin, effectively tightening liquidity across the financial system.
If the Fed now delivers the rate cut that markets are increasingly anticipating, and crucially, signals that more easing is on the horizon, we should see real yields compress and liquidity expand. These are historically favorable conditions that have correlated with periods of strong Bitcoin outperformance. Research from institutions like S&P Global highlights a negative correlation between Bitcoin and real yields, a relationship that has become more pronounced since 2017. Similarly, Bitwise's analysis shows that phases of re-accelerating money growth and looser Fed policy often coincide with stronger Bitcoin performance.
The recent pullback in the U.S. dollar and a renewed expansion of the M2 money supply could very well become significant tailwinds for Bitcoin, but only if markets truly believe that these cuts will be sustained. A singular, isolated rate cut in December, followed by hawkish guidance, would likely leave real yields elevated and liquidity constrained, dampening any potential positive impact on Bitcoin.
What Changed and Why Market Odds Flipped So Fast
The market's rapid shift in rate cut probabilities underscores its extreme sensitivity to Fed communications. Prior to Williams' comments, the December rate cut odds had fallen to about 30% due to uncertainties surrounding employment data. His statement, reassuring markets that near-term cuts were viable without triggering inflation, effectively gave traders the green light to increase their bets on easing.
By the close of November 21, FedWatch probabilities had surged past 70%, reversing a multi-week trend of declining expectations. This swing reflects the impact of two previous rate cuts already delivered in 2025, with the most recent on October 29 bringing the funds rate to 3.75%-4.00% and announcing the end of quantitative tightening by December 1.
Interestingly, the September payrolls data, which showed 119,000 new jobs and unemployment edging up to 4.4%, initially split Wall Street. Banks like JPMorgan, Standard Chartered, and Morgan Stanley withdrew their December-cut forecasts, arguing the job market wasn't weak enough to warrant further easing. However, Citi, Deutsche Bank, and Wells Fargo maintained their dovish stance, pointing to the uptick in unemployment as evidence that the Fed had room to maneuver. Ultimately, Williams' remarks validated the dovish camp, tipping the balance of market opinion.
With markets now pricing in a 70% chance of a December cut, further easing is anticipated in 2026, provided inflation remains contained. The 10-year nominal Treasury yield has already dropped by roughly 60 basis points this year, and TIPS breakevens hovering just above 2.2% suggest that markets are confident inflation can remain anchored even as monetary policy becomes more accommodative.
On-Chain Data and Derivatives: A Picture of Caution
Despite the optimistic shift in Fed expectations, on-chain data from Glassnode and derivatives positioning paint a more cautious picture, suggesting the Bitcoin market has not yet fully embraced a bullish reversal. Glassnode's November 19 report detailed the impact of the recent drawdown, highlighting that Bitcoin had broken below the short-term holder cost basis and the -1 standard deviation band, briefly dipping below $97,000 and even touching $89,000. This was aggravated on November 21 when BTC nearly lost the $80,000 footing. This indicates that recent buyers are currently underwater, turning the $95,000-$97,000 zone into a significant resistance level.
Glassnode estimates that approximately 6.3 million BTC currently sit at an unrealized loss, with the majority concentrated in the -10% to -23.6% range. This distribution, while painful for recent entrants, more closely resembles the range-bound bear market of 2022 rather than a full-blown capitulation event.
Two key price levels stand out in Glassnode's analysis:
- The Active Investors' Realized Price, around $88,600, represents the average cost basis for frequently moved coins.
- The True Market Mean, near $82,000, acts as a crucial threshold distinguishing a mild correction from a deeper, 2022-style bear phase.
Currently, Bitcoin trades between these two critical levels, underscoring the ongoing uncertainty.
Off-chain flows further reinforce this cautious sentiment. U.S. spot ETFs have shown a firmly negative seven-day average, with November outflows approaching a staggering $3 billion. This suggests that institutional investors are not yet stepping in to "buy the dip." Futures open interest is also drifting lower alongside price, indicating that traders are actively de-risking their positions rather than adding leverage. The options market screams "protection mode," with implied volatility spiking back towards levels last seen during October's liquidation event. Skew is sharply negative, and one-week puts are trading at a double-digit premium to calls. Net flows show traders paying a premium for $90,000 downside protection strikes, while only adding modest call exposure. Glassnode interprets this as dealers being short delta and hedging their positions through futures selling, which mechanically adds downward pressure when the market weakens.
The Path Forward: Fed Conviction is Key
A December rate cut, particularly if accompanied by clear guidance towards further easing, would be instrumental in capping real yields and rebuilding the liquidity backdrop that historically supports Bitcoin. The 70% probability now factored into FedWatch reflects a growing confidence that the Federal Reserve sees a viable path to ease monetary policy without re-igniting inflation. This is precisely the narrative shift Bitcoin needs to turn bullish.
However, the immediate market setup, as revealed by Glassnode's on-chain and derivatives data, remains fragile. Recent buyers are underwater, ETFs are experiencing outflows, leverage is unwinding, and options positioning heavily favors protection over speculative conviction. This means that even a December rate cut might not trigger an immediate, decisive reversal if it lacks clear signals about future policy moves. If the Fed hesitates or delivers a one-and-done cut while emphasizing lingering inflation risks, the macro impulse could prove too weak to shift ETF flows or fundamentally alter risk appetite. In such a scenario, Bitcoin could remain pinned below the $95,000-$97,000 resistance zone that Glassnode now considers structural.
John Williams' recent comments have undoubtedly cracked the door open for a more dovish Fed. A December cut, especially one paired with forward guidance for continued easing, could push that door wider. Yet, whether this is enough to propel Bitcoin into a sustained upward trend ultimately hinges on whether the Federal Reserve views December as the commencement of a new easing cycle or merely a brief recalibration. While markets are currently pricing in the former with 70% odds, the on-chain data suggests that Bitcoin traders are not entirely convinced just yet, opting for a cautious stance as they await definitive confirmation.
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