Chances of December interest rate reduction rise above 70%: Do Bitcoin traders believe this will impact the market?

CME FedWatch now indicates over 70% likelihood that the Federal Reserve will reduce rates by 25 basis points during its meeting on December 9-10, lowering the target range from 3.75%-4.00% to 3.50%-3.75%.

This represents a significant intraday turnaround on November 21, when New York Fed President John Williams informed reporters that the Fed could still lower rates “in the near term” without jeopardizing its 2% inflation goal.

A few days prior, the same probability was around 30%, hindered by a government data blackout and hawkish comments from the Fed.

The current question is whether a rate cut in December has enough strength to pull Bitcoin (BTC) out of its protective stance, or if the macro tailwind arrives too late for a market already experiencing a decline in leverage and ETF inflows.

Between November 20 and 21, Bitcoin fell from $91,554.96 to $80,600, before recovering to $84,116.67 at the time of reporting. This fluctuation caused concern among investors, who are uncertain if BTC has reached its local peak this cycle at $126,000, and whether there is sufficient momentum for an upward trend.

The narrative surrounding rate cuts is significant for Bitcoin as it directly affects real yields and liquidity.
In the past two months, inflation-adjusted Treasury returns have risen as markets have discounted easing, diverting capital from high-beta assets and tightening global liquidity.

If the Fed delivers the expected cut and signals more to follow, real yields should decrease and liquidity should increase, conditions that historically align with Bitcoin’s outperformance.

However, on-chain data from Glassnode and derivatives positioning indicate that the market has not yet shifted.

Recent purchasers are at a loss, ETFs are experiencing outflows, and options traders are paying significant premiums for downside protection.

What changed and why it moved odds so fast

Williams’ remarks impacted a market that had just adjusted December odds down to 30% due to uncertainty surrounding employment data.

His assertion that near-term cuts remain feasible without compromising inflation control allowed traders to re-establish rate-cut bets. By the close on November 21, FedWatch probabilities had surged above 70%, reversing a multi-week downward trend.

This shift reflects how responsive markets have become to Fed communications following two cuts already implemented in 2025, the latest on October 29, which reduced the funds rate to 3.75%-4.00% and announced that quantitative tightening would conclude on December 1.

September payrolls reported at 119,000 with unemployment rising to 4.4%, data that divided Wall Street. JPMorgan, Standard Chartered, and Morgan Stanley withdrew their December-cut predictions, arguing that the jobs report was not weak enough to warrant further easing.

Citi, Deutsche Bank, and Wells Fargo maintained their positions, citing the increase in unemployment as evidence that the Fed has room to ease. Williams’ comments tipped the scales, supporting the dovish perspective.

Markets now assign a 70% probability that the Fed will proceed with a cut in December, with additional easing anticipated in 2026 if inflation remains contained.

The 10-year nominal Treasury yield has already decreased by approximately 60 basis points this year, and TIPS breakevens are just above 2.2%, indicating that markets believe inflation can remain anchored even as policy loosens.

Real yields, liquidity, and why Bitcoin cares

The connection between Bitcoin and real yields has emerged as the primary macro narrative this fall.
Increasing inflation-adjusted returns on Treasurys draw capital away from zero-yielding assets like Bitcoin.

S&P Global’s analysis demonstrates a negative correlation between Bitcoin and real yields that has intensified since 2017, with the asset typically outperforming when policy eases and liquidity expands.

Bitwise’s research overlays Bitcoin against the global M2 money supply, revealing that periods of re-accelerating money growth and more accommodating Fed policy coincide with stronger Bitcoin performance.

The recent dollar decline and renewed M2 expansion should act as tailwinds once markets gain confidence that cuts will persist.

A December cut supported by guidance toward further easing would limit real yields and restore the liquidity environment that historically benefits Bitcoin.

However, the mechanics only function if the cut is delivered with conviction. A one-time cut followed by hawkish guidance would keep real yields elevated and liquidity constrained.

Williams’ comments are significant as they imply the Fed sees potential for multiple moves, not merely a symbolic cut in December. If this holds true, the path toward declining real yields and a weaker dollar becomes plausible, providing Bitcoin an opportunity to transition from selling off with liquidity to trending alongside it.

What Glassnode sees on-chain and in derivatives

Glassnode’s November 19 report illustrates the extent of the recent drawdown and why positioning remains cautious.

Bitcoin fell below the short-term holder cost basis and the -1 standard deviation band, dipping under $97,000 and briefly reaching $89,000, which worsened on November 21 as BTC nearly lost the $80,000 level.

Bitcoin price trades below the short-term holder cost basis and cooling bands, indicating recent buyers are underwater amid the current drawdown.

This situation leaves nearly all recent cohorts with unrealized losses, turning the $95,000-$97,000 range into a resistance zone.

Glassnode estimates that 6.3 million BTC are currently underwater, primarily in the -10% to -23.6% range, a distribution that resembles the range-bound bear market of 2022 rather than full capitulation.

Two price levels are noteworthy. The Active Investors’ Realized Price is around $88,600, representing the average cost basis for coins that are frequently traded.

Approximately 6.3 million BTC currently sit at unrealized losses, concentrated in the –10% to –23.6% range as of November 2025.

The True Market Mean, close to $82,000, signifies the boundary between a mild correction and a more severe 2022-style bear market. Bitcoin is currently trading between these levels.

Off-chain flows reinforce the caution. US spot ETFs exhibit a firmly negative seven-day average, with November outflows nearing $3 billion.

This indicates that institutional investors are not stepping in to buy the dip. Futures open interest is declining alongside the price, suggesting that traders are de-risking rather than increasing leverage.

Options positioning indicates a protective stance. Implied volatility has surged back toward levels last observed during October’s liquidation event, skew tilts sharply negative, and one-week puts are trading at a double-digit premium to calls.

Net flows reveal traders are paying up for $90,000 downside strikes while only modestly increasing call exposure. Glassnode’s analysis suggests that dealers are short delta and hedging through futures selling, which mechanically adds pressure when the market weakens.

The path forward depends on Fed conviction

A December cut accompanied by guidance toward further easing would limit real yields and restore liquidity, conditions identified by Bitwise and S&P Global as historically favorable for Bitcoin.

The 70% probability currently reflected in FedWatch indicates increasing confidence that the Fed perceives a path to ease without reigniting inflation, which is precisely what Bitcoin requires to change the narrative.

However, Glassnode’s on-chain and derivatives data indicate that the immediate setup remains fragile. Recent buyers are at a loss, ETFs are experiencing outflows, leverage is unwinding, and options positioning favors protection over conviction.

This suggests that even a December cut might not lead to an immediate reversal if it lacks clear guidance on future actions.

If the Fed hesitates or implements a one-time cut while emphasizing inflation risks, the macro impulse could be insufficient to alter ETF flows or shift risk appetite.

Bitcoin would remain constrained below the $95,000-$97,000 resistance that Glassnode now regards as structural.

Williams’ comments have opened the door slightly. A December cut with forward guidance could widen it further. Whether that is sufficient to propel Bitcoin forward depends on whether the Fed views December as the beginning of a new easing cycle or merely the conclusion of a brief adjustment.

Markets are currently pricing in the former at 70% odds. The on-chain data suggests that traders remain unconvinced.

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