Briefing
Crypto markets, along with broader global risk assets, experienced a significant rebound this week as investor confidence surged due to rapidly increasing expectations for a Federal Reserve rate cut in December. This shift in sentiment, with rate-cut probabilities jumping from approximately 30% to 85%, propelled Bitcoin back above $90,000, marking a 4.9% gain for the week. While Bitcoin and the S&P 500 saw notable advances, the recovery in altcoins remains narrow, with most still significantly below their all-time highs.
Context
Before this week’s rally, many market participants were grappling with uncertainty regarding the Federal Reserve’s monetary policy direction and its potential impact on risk assets. The prevailing question was whether the market would continue to face headwinds from a restrictive stance or if macroeconomic signals would prompt a more accommodative approach, allowing crypto assets to find a floor and begin a recovery.
Analysis
The primary catalyst for this market turnaround was a dramatic increase in the perceived likelihood of a December Federal Reserve rate cut. Think of it like a dam holding back water → when the market’s expectation of a rate cut (the dam opening) suddenly increased, it released a flood of optimism into risk assets, including cryptocurrencies. This rapid shift in rate-cut probabilities, driven by early signs of a softening labor market and other macroeconomic cues, led to lower U.S. Treasury yields and a weaker U.S. dollar, making riskier assets like Bitcoin more attractive. The market reacted by stabilizing and moving higher, reflecting a cautious but clear improvement in risk sentiment.
Parameters
- December Rate Cut Probability → Surged from approximately 30% to 85% (or 82% according to some reports), indicating a strong market expectation for the Federal Reserve to ease monetary policy.
- Bitcoin Weekly Gain → Bitcoin added 4.9%, closing the week above US$90,000.
- S&P 500 Weekly Gain → The S&P 500 advanced 2.8%, reflecting a broader positive sentiment across risk assets.
- Altcoin Performance → 79 of the top 100 tokens remain more than 50% below their all-time highs, highlighting a narrow market recovery.
- Altcoin ETF Inflows → Newly launched altcoin ETFs continue to see steady, positive net inflows exceeding US$1.3 billion.
Outlook
The immediate focus for the crypto market will be the upcoming December FOMC meeting and the nomination of the next Federal Reserve Chair, as these events will further shape market expectations for monetary policy into the year-end. Investors should monitor incoming macroeconomic data, particularly labor market indicators, for continued signs that reinforce the likelihood of a rate cut. A sustained softening of the labor market could further bolster confidence in a more accommodative Fed stance, potentially extending the current market rebound.
