Fed Rate Cut Odds Surge: Will Bitcoin Rally or Remain Cautious?
The probability of the Federal Reserve implementing a 25 basis point rate cut in December has dramatically increased to over 70%, following New York Fed President John Williams’ assurance that near-term cuts are viable without compromising inflation targets. This marks a significant reversal from earlier in the week when odds were around 30%. The central question is whether this macro shift will pull Bitcoin (BTC) out of its current defensive posture, especially after recent price dips from over $91,000 to $80,600.
A rate cut is crucial for Bitcoin due to its direct impact on real yields and global liquidity. Historically, lower inflation-adjusted Treasury returns and expanded liquidity, driven by easier Fed policy, correlate strongly with Bitcoin outperformance. Research from S&P Global and Bitwise supports this, highlighting a negative correlation between Bitcoin and real yields, and a positive link with M2 money supply growth. If the Fed delivers the expected cut and signals further easing, real yields should compress and liquidity expand, creating a potentially favorable environment for high-beta assets like Bitcoin.
However, despite the improved odds, on-chain data from Glassnode and derivatives positioning indicate the Bitcoin market remains fragile. Recent buyers are largely underwater, with approximately 6.3 million BTC currently at unrealized losses, predominantly in the -10% to -23.6% range. US spot ETFs are experiencing significant outflows, approaching $3 billion in November, suggesting institutional caution rather than buying the dip. Furthermore, options traders are paying double-digit premiums for downside protection, and futures open interest is declining, all pointing to a defensive “protection mode.”
The path forward hinges on the Fed’s conviction. A December cut accompanied by clear forward guidance toward a sustained easing cycle could cap real yields and rebuild liquidity, aligning with historical tailwinds for Bitcoin. Conversely, a “one-and-done” cut without such guidance might prove insufficient to shift market sentiment or trigger an immediate reversal, leaving Bitcoin pinned below key resistance levels like the $95,000-$97,000 zone. While markets are pricing in a 70% chance of a broader easing cycle, on-chain data suggests traders are not yet fully convinced.
