Nearly $50 million is betting on 'holding steady'
The market is voting with real money, and the results of the vote have disappointed those expecting rate cuts at the beginning of the year.
"Is the Federal Reserve really going to change direction this time?" For the past month, I've been seeing this question every day in the comments. Just last night, a seasoned trader confidently told me: "Interest rate cuts in January next year are a done deal!"
However, the data tells us a completely different story: According to the latest market pricing, the probability of the Federal Reserve maintaining interest rates in January next year is as high as 81%, while the probability of a 25 basis point cut is only 18%. More critically, this expectation is backed by an actual transaction volume of $49.28 million, with a lot of smart money firmly betting on 'wait and see'.
As a cryptocurrency analyst who has experienced multiple market cycles, I believe this is not just a simple interest rate prediction, but rather a key variable that will determine the trends of cryptocurrencies in the coming months.
01 Three major signals for the sudden shift in market expectations
Just a few weeks ago, the market was still filled with optimistic expectations for interest rate cuts. So, what caused this rapid change in expectations?
First, the hawkish statements from Federal Reserve officials have become a key turning point. This week, Federal Reserve official Mester's speech directly doused the market with cold water. He clearly stated that while policies need to be further loosened to guard against economic risks, the three rate cuts since September have cumulatively reached 75 basis points, and there is no need for a large cut of 50 basis points next month.
After this statement, market expectations were quickly repriced. Federal Reserve official Harker also emphasized that there is no need to adjust interest rates before spring, further reinforcing this signal.
Secondly, economic data supports a 'wait and see' stance. Although US private sector employment unexpectedly decreased in November, indicating a structural weakening in the labor market, inflationary pressures are gently easing, with the core PCE price index in September rising 2.8% year-on-year and only 0.2% month-on-month.
The inflation indicator that the Federal Reserve values most, the core PCE price index, will become the key to the next decision. If the data released this Friday is lower than expected, it may reignite expectations for rate cuts; conversely, it will strengthen the reasons for holding steady.
Third, internal divisions within the Federal Reserve are increasing, and decision-making is becoming more cautious. In December's interest rate decision, three members voted against, with one calling for more aggressive rate cuts and two wanting to maintain rates. This division indicates that the Federal Reserve needs more time to assess the economic outlook rather than rushing to make decisions.
02 Real capital flows reveal market consensus
In financial markets, words can be ambiguous, but money never lies. Nearly $50 million is betting on 'holding steady', and behind this number is the true judgment of large institutional investors.
These institutional investors have stronger research teams and richer data sources, and their collective actions reveal the true direction of market consensus. The trading activity of prediction markets like Polymarket remains high after the election, and their market odds have been proven to have high accuracy.
Historically, market expectations for Federal Reserve policy often lag behind actual changes. But this time, the situation may be different, as capital flows indicate that caution has become mainstream.
The correlation between the cryptocurrency market and traditional financial markets is strengthening. Data shows that Bitcoin's correlation with the S&P 500 index is 36%, while Ethereum is 38%. When traders in the traditional markets start to avoid risk, this sentiment will also transmit to the crypto market.
03 Potential impacts on the cryptocurrency market
In the short term, unmet liquidity expectations may bring stress tests. The cryptocurrency market has recently been in a volatile pattern, with Bitcoin hovering in the $88,800-$89,200 range and Ethereum negotiating around the key level of $3,020.
The Federal Reserve's decision to hold steady may become a catalyst for breaking this balance. This week's market movements have already taught us a lesson: Bitcoin surged to $90,600 during the day but quickly fell after the US market opened, ultimately dropping to $87,800, erasing all gains for the day.
In the medium term, market focus will shift to the March policy window. The current term of Federal Reserve Chairman Powell will end in May 2026, and the next chairman candidate has become a new uncertain factor. Trump has stated he will appoint someone who advocates for significant interest rate cuts for this position, with White House National Economic Council Director Kevin Hassett seen as the top candidate.
This personnel change may bring about a policy shift, but the real impact will not be evident until next spring. In the meantime, the cryptocurrency market may need to seek new narrative drivers.
In the long term, the trends of institutionalization and compliance will not change. Although there are short-term adjustments to liquidity expectations, the long-term development trend of the crypto market has not changed. VC investments are focusing on 'real utility and cash flow', rather than vague conceptual speculation.
Four major investment tracks worth paying attention to: RWA (real-world assets), AI and crypto-integrated consumer applications, on-chain investment platforms for retail investors, and infrastructure to enhance Bitcoin's practicality.
04 Trading strategy: from prediction to response
Faced with a highly uncertain market environment, my personal strategy is to shift from prediction to response.
First, key price levels are more important than directional judgments. In the current environment, accurately predicting market direction is nearly impossible, but we can clearly identify key support and resistance levels. For Bitcoin, the lower support is in the 87500-87000 range, and short-term resistance is at 89500 and 90500. For Ethereum, 2940-2900 is an important support area, while 3070 is the short-term core resistance.
Secondly, position management is more important than timing trades. When market direction is unclear, I tend to reduce leverage to avoid excessive exposure to risks in a single direction. Recent data shows that over 100,000 people were liquidated within 24 hours in the cryptocurrency market, with a total liquidation amount reaching $301 million, which fully illustrates the dangers of high leverage in volatile markets.
Finally, focus on structural opportunities rather than the overall market. Even if the overall market is volatile, some sectors may still produce independent trends. For example, Bitcoin mining companies are transitioning to HPC (high-performance computing), and by the end of 2026, the proportion of mining revenue from transitioning companies is expected to fall below 20%, as HPC margins are about three times that of mining.
In the near future, the market may oscillate repeatedly like it has recently. Bitcoin's fluctuations around $86,000 will become the new normal, with macro uncertainties and the new Federal Reserve chair candidate becoming the focus.
But remember, the market will never lack opportunities. Staying calm when others panic and seeking certainty in uncertainty is the core competency of us as crypto investors.
Federal Reserve policy is just one of many factors influencing the market. The true determinants of the long-term value of cryptocurrencies are still fundamental factors like technological progress, application landing, and user growth.
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