CME FedWatch currently suggests there is a greater than 70% chance that the Fed will cut rates by 25 basis points at its Dec. 9-10 meeting, lowering its target range from 3.75-4.00% to 3.50-3.75%.
This marks a dramatic intraday reversal on Nov. 21, when New York Fed President Williams told reporters the Fed could lower interest rates “in the short term” without jeopardizing its 2% inflation target.
A few days ago, the odds were close to 30%, weighed down by the government’s data cover-up and the Fed’s hawkish commentary.
The question now is whether the December rate cut will provide enough confidence to bring Bitcoin (BTC) out of protection mode, or whether the macro tailwinds will arrive too late for a market that has already lost leverage and ETF flows.
Between November 20th and 21st, Bitcoin plummeted from $91,554.96 to $80,600, but has recovered to $84,116.67 at the time of writing. This move worried investors who were unsure whether BTC had reached its local high of $126,000 this cycle, with no upward momentum left.
The rate cut story is important for Bitcoin as it directly translates into real yields and liquidity.
Inflation-adjusted U.S. Treasury yields have risen over the past two months as markets priced in easing and pulled capital out of high-beta assets, tightening global liquidity.
If the Fed delivers the rate cuts currently expected by the market and signals further cuts, real yields should be compressed and liquidity should expand, a situation that has historically correlated with Bitcoin’s outperformance.
However, on-chain data and derivatives positioning from Glassnode shows that the market has not yet reversed.
Buyers are underwater these days, ETFs are bleeding, and options traders are paying double-digit premiums for downside protection.
What has changed and why have the odds changed so quickly?
Williams’ comments shocked the market, which had just cut its odds for December to 30% amid uncertainty over the jobs report.
His remarks that short-term rate cuts remain viable without jeopardizing inflation control allowed traders to reload bets on rate cuts. By the close on November 21st, FedWatch’s odds had soared above 70%, reversing weeks of decline.
The move reflects how sensitive the market is to the Fed’s message after two rate cuts have already taken place in 2025, most recently on October 29th, when it was announced that rates would go from 3.75% to 4.00% and that quantitative tightening would end on December 1st.
The September employment report showed 119,000 people and the unemployment rate had risen to 4.4%, data that divided Wall Street. JPMorgan, Standard Chartered and Morgan Stanley withdrew their forecasts for rate cuts in December, arguing that employment data was not weak enough to justify further easing.
Citi, Deutsche Bank and Wells Fargo were solid, pointing to rising unemployment as evidence the Fed has room to ease. Williams’ statement tipped the balance and legitimized the dovish camp.
Markets are currently pricing in a 70% chance that the Fed will implement policy in December, with further easing expected in 2026 if inflation remains under control.
The 10-year nominal Treasury yield has already fallen about 60 basis points this year, leaving TIPS’ breakeven point at just above 2.2%, suggesting the market believes inflation can be sustained even as policy eases.
Real yield, liquidity, and why Bitcoin is attracting attention
The relationship between Bitcoin and real yields has been the dominant macro story this fall.
Rising inflation-adjusted U.S. Treasury yields will pull capital away from zero-yielding assets like Bitcoin.
According to research by S&P Global, the negative correlation between Bitcoin and real yields has strengthened since 2017, and Bitcoin tends to outperform when policy loosens and liquidity expands.
Bitwise research overlays Bitcoin with the global M2 money supply, showing that Bitcoin’s improved performance coincides with a re-acceleration of money growth and loosening of Fed policy.
If the market believes rates will continue to be cut, the recent weakness in the dollar and the re-expansion of M2 will provide tailwinds.
A rate cut in December, backed by guidance for further easing, will likely constrain real yields and rebuild the liquidity environment that has historically supported Bitcoin.
But this mechanism only works if the cuts arrive with confidence. If one-off rate cuts and hawkish guidance continue, real yields will rise and liquidity will be constrained.
Williams’ comments are important because they suggest the Fed believes there is room for more than just a token cut in December. If that proves to be true, it would lend credibility to the path to lower real yields and a weaker dollar, giving Bitcoin a chance to turn from a liquidity sell-off into a trend.
What Glassnode is seeing in on-chain and derivatives
Glassnode’s November 19 report reveals how hard the recent drawdown has hit and why the positioning remains defensive.
Bitcoin fell below the short-term holder cost criterion and the -1 standard deviation band, dropping below $97,000 and briefly reaching $89,000, but things got worse on November 21st, when Bitcoin nearly lost its $80,000 foothold.
This leaves almost all recent cohorts with unrealized losses and turns the $95,000 to $97,000 zone into resistance.
Glassnode estimates that there is currently 6.3 million BTC underwater, with most of it in the -10% to -23.6% range, with a distribution more similar to a 2022 range-bound bear market than a complete capitulation.
Two price levels stand out. The realized price for active investors is approximately $88,600, representing the average cost basis of the coin, which fluctuates regularly.
The true market average is around $82,000, marking the dividing line between a mild correction and a deeper 2022-style bear phase. Bitcoin is currently trading between these levels.
Off-chain flows are alarming. The seven-day average for U.S. spot ETFs is firmly negative, with November outflows approaching $3 billion.
This suggests that institutional allocators are not intervening to buy on the downside. Futures open interest has fallen along with price, suggesting traders are reducing risk rather than adding leverage.
Option to place scream protection mode. Implied volatility has soared to levels last seen during the October liquidation event, skew has turned sharply negative, and one-week puts are at a double-digit premium over calls.
The net flow shows that the trader is paying a $90,000 downside strike while adding only a small call exposure. Glassnode’s reading is that dealers are shorting delta and hedging with futures sales that mechanically add pressure when the market softens.
The path forward depends on the Fed’s conviction.
A December rate cut with guidance for further easing will constrain real yields and rebuild liquidity, a situation that Bitwise and S&P Global recognize is historically favorable for Bitcoin.
The 70% probability currently priced into FedWatch reflects growing confidence that the Fed will find a path to easing without reigniting inflation, which is exactly what Bitcoin needs to reverse the narrative.
However, Glassnode’s on-chain and derivatives data shows that the immediate setup remains vulnerable. Buyers are underwater these days, ETFs are bleeding, leverage is being unwound, and option positioning favors protection over conviction.
This means that even the December rate cut may not be able to trigger an immediate reversal if it is done without clear guidance on future movements.
If the Fed blinks or cuts rates one-and-done while emphasizing inflation risks, macro impulses may prove too weak to alter ETF flows or reverse risk appetite.
Bitcoin will remain below the $95,000 to $97,000 resistance level that Glassnode currently views as structural.
Williams’ comments forced the door open. A rate cut in December with forward guidance could widen margins. Whether that’s enough to boost Bitcoin will depend on whether the Fed views December as the start of a new easing cycle or the end of a short readjustment.
The market has priced in the former with 70% odds. On-chain data suggests that traders are still unconvinced.
(Tag translation) Bitcoin
