In the early hours of this Thursday, what determines the direction of risk assets is not the rate cut itself.

Written by: David, Deep Tide TechFlow

This Thursday (Beijing time), the Federal Reserve will announce its final interest rate decision of the year. Market expectations are highly aligned:

According to CME FedWatch data, the probability of a 25 basis point rate cut exceeds 85%.

If it happens, this will be the third consecutive rate cut since September, bringing the federal funds rate down to the 3.5%-3.75% range.

For crypto investors used to the “rate cut = bullish” narrative, this sounds like good news.

But the issue is, when everyone expects a rate cut, the cut itself is no longer a market-moving factor.

Financial markets are machines of expectation. Prices reflect not “what happened,” but “what happened relative to expectations.”

An 85% probability means the rate cut is fully priced in; when the actual announcement comes in the early hours of Thursday, unless there’s a surprise, the market response will be muted.

So what is the real variable?

The Fed’s attitude toward next year. A 25 basis point cut is pretty much set, but how long the cutting cycle will last, and how many more times rates can be cut in 2025, are what the market is really betting on.

In the early hours of Thursday, the Fed will also update its projections for the future rate path, which often has more market impact than the rate decision itself.

But this time, there’s an extra problem: the Fed itself may not have a clear picture.

That’s because from October 1 to November 12, the US federal government was shut down for 43 days. During that period, the statistical departments stopped working, resulting in the cancellation of the October CPI release, and the November CPI was delayed to December 18, a full week after this week’s FOMC meeting.

This means Fed members will be discussing rate prospects without the most recent two months of inflation data.

When decision-makers themselves are feeling around in the dark, the guidance they give will be even more ambiguous, and ambiguity often means greater room for market volatility.

Let’s look at this week’s timeline:

We can specifically analyze what kinds of signals the Fed might give and the corresponding market reactions.

Betting on Next Year’s Expectations

After every FOMC meeting, the Fed releases a Summary of Economic Projections.

It includes a chart that shows all Fed members’ expectations for future interest rates.

Each member makes a dot marking where they think rates should be at year-end. Because it looks like a bunch of scattered dots, the market calls it the “dot plot.” You can find all the historical dot plots on the Fed’s official website.

Below is the dot plot released at the September 17 FOMC meeting.

It shows the Fed’s internal divisions and consensus. If the dots are clustered, members are mostly in agreement and the policy path is relatively clear;

If the dots are spread out, there’s internal disagreement and the future is full of variables.

For the crypto market, uncertainty itself is a risk factor. It suppresses risk appetite, causing funds to prefer the sidelines rather than entering.

From the chart, you can see that for 2025, the dots mainly cluster in two areas: around 3.5%-3.625% (about 8-9 dots), and around 3.75%-4.0% (7-8 dots). This indicates a split within the committee:

One camp thinks there should be 1-2 more cuts this year, the other thinks cuts should pause or just one more cut should happen. The median falls around 3.6%, meaning most members expect two more cuts in 2025 (including this week’s).

If you look at 2026, the division is even greater.

The current rate is 3.75%-4.00%. If it drops to about 3.4% by the end of next year, that means only 1-2 cuts for the year. But from the chart, some members think it should go down to 2.5% (4-5 cuts), while others think it should stay at 4.0% (no cuts).

Within one committee, the most dovish and most hawkish forecasts differ by the equivalent of six rate cuts. This is a “highly divided” Fed.

This division itself is a signal.

If the Fed can’t agree internally, the market will vote with its feet. Currently, traders’ bets are more aggressive than the official guidance. CME FedWatch shows the market is pricing in 2-3 cuts in 2026, while the official dot plot median shows only one.

So, this Thursday’s FOMC meeting is, in a sense, a “synchronization” between the Fed and the market. Will the Fed move toward the market, or stick to its own pace?

Three Scenarios, Three Market Reactions

Based on current information, there are roughly three paths the FOMC could take this week.

The most likely scenario is “in line with expectations”: a 25bp cut, the dot plot sticks to the September guidance, and Powell repeatedly emphasizes “data dependence” at the press conference, giving no clear direction.

In this case, the market won’t be very volatile. The rate cut is already priced in, the guidance hasn’t changed, and there are no new trading signals. The crypto market will likely follow US stocks in minor fluctuations before returning to the prevailing trend.

This is also the base case for most Wall Street firms; recent reports from Goldman Sachs and Raymond James point in this direction.

The next most likely scenario is “dovish”: a 25bp cut, but the dot plot shows two or more cuts possible in 2026, and Powell’s tone is soft, emphasizing labor market risks more than inflation.

This would be the Fed aligning with market expectations, confirming the path of easing. The dollar would weaken, boosting dollar-denominated assets, while improving liquidity expectations would lift market sentiment. BTC and ETH could rally alongside US stocks, with the former likely to test recent highs.

A less likely but not impossible scenario is “hawkish”: even with a 25bp cut, Powell emphasizes sticky inflation and hints at limited room for cuts next year; or there are several dissenting votes, showing internal resistance to further easing.

This is essentially telling the market “you’re getting ahead of yourselves.” The dollar strengthens, liquidity expectations tighten, and risk assets come under pressure. The crypto market could face a short-term pullback, especially high-beta altcoins.

However, if it’s just a hawkish tone and not a real policy shift, the drop is usually limited and could even present a buying opportunity.

Normally, the Fed would adjust the dot plot based on the latest data. But this time, they’re missing two months of CPI due to the government shutdown and have to make judgments with incomplete information.

This creates several chain reactions. First, the reference value of the dot plot is discounted; the members themselves are uncertain, so the dots may be more scattered.

Second, Powell’s press conference will carry more weight, and the market will scrutinize every word for direction. If the dot plot’s leanings don’t match Powell’s tone, the market will be more confused and volatility could be magnified.

For crypto investors, this means Thursday’s market action could be harder to predict than usual.

Rather than betting on direction, focus on volatility itself. When uncertainty rises, managing position size matters more than betting on price moves.

Tonight’s Job Openings Data Isn’t as Important as You Think

The above discussion focuses on Thursday’s FOMC, but tonight (Beijing time, Tuesday 23:00)) there’s another data release: JOLTs.

On social media, some occasionally hype it as very important, such as “quietly setting the direction of liquidity.” But to be honest, JOLTs doesn’t carry much weight among macro data. If you’re short on time, just keep your eyes on Thursday’s FOMC;

If you want more labor market background, read on.

JOLTs stands for Job Openings and Labor Turnover Survey. It’s released monthly by the US Bureau of Labor Statistics (BLS), counting how many jobs US businesses are hiring for, how many were filled, and how many people left.

The most-watched figure is “job openings”: the higher the number, the stronger employer demand for hiring, and the tighter the labor market.

During the 2022 peak, this number exceeded 12 million, meaning companies were scrambling for workers and wages were rising rapidly—something the Fed worried would fuel inflation. Now, the number has dropped to about 7.2 million, basically back to pre-pandemic levels.

Image source: JIN10 Data

Why might this data’s importance be overstated?

First, JOLTs is a lagging indicator. Today’s release is for October, but it’s already December. The market pays more attention to timely data, like weekly jobless claims or the monthly nonfarm payrolls report.

Second, expected job openings of around 7.1 million isn’t “overheating.” Analysts previously pointed out that the job openings-to-unemployed ratio fell below 1.0 in August, meaning there are now fewer than one opening per unemployed person.

This is very different from the 2022 situation of “two jobs for every jobless person.” The “overheated labor market” narrative is long outdated.

According to LinkUp and Wells Fargo forecasts, tonight’s October JOLTs is likely to come in around 7.13-7.14M, not much different from the previous 7.2M.

If the numbers meet expectations, the market will barely react; it just confirms the existing narrative of a “labor market continuing to cool slowly” and won’t change anyone’s Fed expectations.

Tonight’s data is more like an “appetizer” before the FOMC, with the real main course in the early hours of Thursday.

What Will Happen to My BTC?

Everything above is macro data, but you might care more about one question: How does all this actually affect my BTC and ETH?

Here’s the conclusion: it matters, but it’s not as simple as “rate cuts = price up.”

The Fed’s rate decisions impact crypto markets through several channels.

First is the dollar. Rate cuts mean lower yields on dollar assets, so funds look for alternatives. When the dollar weakens, dollar-denominated assets (including BTC) usually perform better.

Second is liquidity. In a low-rate environment, borrowing is cheaper and there’s more money sloshing around, some of which flows into risk assets. The 2020-2021 bull run was largely a result of the Fed’s unlimited QE.

Third is risk appetite. When the Fed sends dovish signals, investors get more willing to take risks, moving funds from bonds and money market funds to stocks and crypto; the reverse happens with hawkish signals, with funds flowing back to safe assets.

These three channels together form the transmission chain: “Fed policy → USD/liquidity → risk appetite → crypto assets.”

In theory, BTC now has two popular identities: “digital gold” or “risk asset.”

If it’s digital gold, it should rally like gold during market panic and be negatively correlated with stocks. If it’s a risk asset, it should move with the Nasdaq, performing well when liquidity is loose.

In reality, over the past few years BTC has resembled the latter more.

According to CME research, since 2020, BTC’s correlation with the Nasdaq 100 jumped from nearly zero to around 0.4, sometimes exceeding 0.7. The Kobeissi Letter recently noted BTC’s 30-day correlation at one point hit 0.8, the highest since 2022.

But there’s been an interesting phenomenon lately. According to CoinDesk, over the past 20 days BTC’s correlation with the Nasdaq has dropped to -0.43, a clear negative correlation.

Data source:

The Nasdaq is just 2% off its all-time high, but BTC is down 27% from its October peak.

Market maker Wintermute has an explanation: BTC currently shows “negative skew”—it falls more when stocks fall, but lags when stocks rise. In their words, BTC “only shows high beta in the wrong direction.”

What does this mean?

If this week’s FOMC sends a dovish signal and US stocks rise, BTC may not rebound in sync; but if there’s a hawkish signal and stocks fall, BTC could drop even more. This is an asymmetric risk structure.

Summary

After all that, here’s a framework you can use to keep track.

What to watch this week (( December 9-12)?

The core is Thursday morning’s FOMC. Focus on three things: whether the dot plot changes, especially the median rate projection for 2026; whether Powell’s press conference tone is dovish or hawkish; and whether there are multiple dissenting votes.

What to watch in mid-to-late December?

On December 18, the November CPI will be released. If inflation data rebounds, markets may reprice next year’s rate cut expectations, and the “continued easing” narrative for the Fed will be challenged.

What to watch in Q1 2026?

First, the Fed chairmanship. Powell’s term ends in May 2026.

Second, the ongoing impact of Trump’s policy. If tariffs are further expanded, this could continue to push up inflation expectations and squeeze the Fed’s room for easing.

Also, keep an eye on whether the labor market deteriorates more rapidly. If layoffs start to rise, the Fed may be forced to accelerate rate cuts—then we’re looking at a whole new scenario.