As of December 25, 2025, according to the CME "Fed Watch," the market-implied probability of the Federal Reserve maintaining interest rates in January next year hovers above 80%, with the latest reported range around 84.5%—86.7%. The corresponding probability of a 25 basis point rate cut is only around 15.5%—13.3%. By March next year, the cumulative probability of a 25 basis point rate cut is about 40%—42.2%, still forming a tug-of-war with the expectation of maintaining rates at around 50%. This set of probabilities indicating "short-term high levels maintained, limited rate cut expectations before March" is forcing the market to adjust its previous "rapid rate cut" narrative to a new framework of "hawkish pause + gradual easing."
Recently, Bitcoin and mainstream crypto assets have generally maintained a range-bound fluctuation, coinciding with a volume contraction in global stock and bond markets before the Christmas holiday. Sentiment has shifted from earlier "rate cut bull market hopes" to "short-term wait-and-see, long-term speculation." For traders, it is essential to closely track the implied interest rate path of federal funds futures, key data such as non-farm payrolls and PCE, as well as structural changes in open interest from futures on platforms like CME and Binance to determine the next direction of alignment between interest rate expectations and crypto market pricing.
Core Events
Recently, regarding the interest rate path for the Federal Reserve's January meeting, the signals from federal funds futures are relatively consistent: As of the latest data, the market-implied probability of maintaining rates in January remains above 80%, far exceeding the approximately 15% pricing for a 25 basis point rate cut, indicating that the current trading narrative is "holding steady" rather than "rushing to cut rates."
According to data from Jin10 and BlockBeats relaying CME "Fed Watch," the probability of maintaining rates in January has been reported as 80.1%, 84.5%, and 86.7%, while the probability of a 25 basis point rate cut has fallen from about 31% after the mid-December non-farm payrolls to the current range of 13%—15%. By March next year, the cumulative probability of a 25 basis point rate cut fluctuates around 42.2%, while the probability of maintaining rates remains dominant in the range of 51.8%—54.4%, indicating a clear divergence in the market regarding whether rate cuts will begin in the first half of the year.
Behind this probability path is the judgment of several Federal Reserve officials that the risks of inflation and employment are "roughly balanced," signaling that "there is no need to rush to cut rates." Additionally, the latest dot plot indicates a preference for "only a few rate cuts, with a slower pace" in 2025. Coupled with the resilience of the U.S. job market and the sticky nature of core PCE, the bets on "early and significant" rate cuts have been gradually squeezed out, and the market pricing for the January meeting has returned to a "high-level maintenance" baseline scenario.
In the crypto market, this repricing of interest rate expectations has not directly triggered extreme daily volatility but is reflected in the narrowing of Bitcoin futures basis, the decline of CME Bitcoin futures open interest to its lowest level since February 2024, and a relative increase in open interest on platforms like Binance, indicating a slow variable adjustment.
Overall, the direct impact of this round of events is not a one-time shock at the price level but rather a time dimension where the "peak rate hike period is extended," thereby changing the rhythm and preference of capital inflows and outflows in the crypto market.
Interplay of News, Capital, and Sentiment
On the news front, the key chain driving market expectation adjustments is relatively clear: first, after the release of non-farm payroll and inflation data in mid-December, federal funds futures briefly pushed the probability of a rate cut in January to about 31%; second, the subsequent release of FOMC meeting minutes, the dot plot, and speeches from several officials reinforced the tone of "inflation has receded but is not yet fully reassuring"; third, the latest round of CME data before the holiday raised the probability of maintaining rates in January back above 80%, pushing the rate cut timeline before March further back.
The most important change in the news is that the question of "whether to cut rates immediately" has gradually been priced as "not urgent in the short term, to be assessed based on data in the medium term," weakening the previous market's urgent sentiment of "rushing into the easing cycle."
In terms of capital, this manifests in two directions:
On one hand, the expectation of prolonged high rates means that the risk-free yield of U.S. cash and short-term government bonds remains attractive, exerting some pressure on the relative appeal of risk assets like crypto and U.S. stocks. Whether for institutions or high-net-worth individuals, in the face of over 5% short-term yields, the willingness to marginally allocate to high-volatility assets tends to become more rational, especially for assets that have already experienced a round of increases and are not extremely cheap in valuation, requiring clear liquidity catalysts to significantly increase holdings.
On the other hand, CME Bitcoin futures open interest has fallen to its lowest level since February 2024, while open interest on crypto-native platforms like Binance remains at the forefront, indicating a phase of reduced institutional participation through regulated derivatives channels, while the proportion of crypto-native capital, retail, and high-leverage traders in the overall structure has increased. In this structure, capital prices remain high, but the willingness and methods of using leverage are changing, shifting from the previous trend of high-leverage directional trading to more neutral hedging and spread strategies.
Sentiment shows a misalignment of "short-term cooling, long-term optimism still exists." Several KOLs on social media emphasize that after multiple rate cuts by the Federal Reserve, the next year is likely to be a "gradual easing" pace, with the initiation time and frequency possibly lower than the market's optimistic expectations at the beginning of the year. This creates a subtle emotional balance: expectations for "immediate significant easing in January" are compressed, but the belief that "a medium- to long-term easing cycle will still come" has not been destroyed, with bulls more inclined to view the current situation as "a prolonged accumulation period under high rates."
It is worth noting that the current period coincides with the Christmas and year-end holidays, with many stock markets closing early. U.S. stocks and CME futures closed early on December 24 in the East 8 time zone. The shortened trading hours and significant decrease in depth during the holiday make any macro expectations or single large trades more likely to amplify short-term volatility. Therefore, attributing "interest rate expectations have changed everything" to localized candlesticks before and after the holiday carries a clear risk of bias.
Deep Logic: How Interest Rate Paths Transmit to Crypto Valuation
From a deeper logical perspective, the current path of "high probability of maintaining rates in January, divergence in rate cut expectations for March" is not a simple binary story of "rate cuts = positive, holding steady = negative," but rather influences crypto assets through two main channels: funding costs and risk appetite.
In terms of funding costs, maintaining the federal funds rate at a high level for a longer duration raises the base costs of all leveraged trading, prompting the crypto market to shift from "high-leverage trend-following" to "stable leverage, focusing on timing." Whether it is long positions in Bitcoin or Ethereum, or cross-asset arbitrage and hedging strategies, the increase in funding costs will compress the acceptable drawdown space and holding time for strategies.
In terms of risk appetite, the interest rate path affects the relative attractiveness of the entire asset allocation pyramid. The market has already partially priced in the "rate cut bull market" around the end of 2024 to the beginning of 2025, with tech stocks and high-beta assets like Bitcoin experiencing varying degrees of increases. When the probability of a rate cut in January falls from 31% to around 15%, it signals to the market that some of the previous gains may have overdrawn optimistic pricing for easing, and future expectations need to be filled with real macro data and corporate earnings.
Historically, in the transition zone of "rate hikes → pauses → rate cuts," Bitcoin's performance has not always been unidirectional upward, but often accompanied by significant volatility and style rotation: on one hand, capital oscillates between "is it too early to get in now" and "the cost of missing out is higher later"; on the other hand, within sectors, there is often a rotation between "more certain cash flows, more stable narratives" of mainstream assets and "higher elasticity" of thematic assets.
The current round differs from the past in that CME Bitcoin futures open interest has significantly decreased, while the proportion of open interest on platforms like Binance has increased. Additionally, the introduction of TAS (settlement price trading) functionality for SOL and XRP futures by the CME provides some institutions with more refined risk management tools. This means that while the institutional trading share in the crypto derivatives market has cooled, the product functionality continues to enrich, laying the groundwork for a potential new round of incremental capital inflows.
On-chain data, although the brief does not provide specific values, suggests that in a high-interest-rate environment, the marginal returns of high-risk leveraged activities on-chain (such as excessive staking cycles) are compressed, leading more capital to seek strategies with controllable risks and relatively certain returns, such as cash-and-carry arbitrage, cross-platform basis trades, and options combinations to hedge macro event risks.
Bull-Bear Game: Three Main Lines in Slow Rate Cut Expectations
In this environment of "no cuts in the short term, possible cuts in the medium term," the core game between bulls and bears revolves around three main lines.
The first main line of the bull logic is "medium- to long-term easing is still on the way." From the dot plot and statements from some officials, the overall direction for 2025 remains to lower rates, albeit fewer times than the market previously imagined. Bulls believe that historically, as long as the direction of rates shifts from rising to falling, the liquidity cycle will eventually support the valuation of risk assets, and crypto assets, as high-beta varieties, will ultimately benefit from this structural easing. From this perspective, the current >80% probability of "maintaining rates in January" is not the end of the story but provides a time window for longer-term position accumulation.
The second main line of the bull logic is "long-term optimization of institutional and product structures." Although CME Bitcoin futures open interest has decreased, the launch of new features and products, including SOL and XRP futures TAS, shows that traditional institutions' demand for crypto derivatives has shifted from "whether to participate" to "how to participate more precisely." In the eyes of bulls, this structural evolution lays the foundation for deeper institutionalization in the future, and even if there is some wait-and-see due to high rates in the short term, it is unlikely to reverse the long-term direction.
Correspondingly, the first main line of the bear logic is "expectations have been priced in early." In the second half of 2024 to early 2025, the market has completed a round of risk asset revaluation around "rate cut expectations." When the probability of a rate cut in January falls from 31% to nearly 15%, it means that the previous optimistic expectations must be partially corrected. Bears believe that there is a certain degree of crowded trading and excessive leverage in the crypto market, and if the rate cut timeline from January to March further misaligns or the actual rate cut magnitude is lower than the current central pricing of federal funds futures, it may trigger a new round of "expectation differential adjustments" and leverage cleansing.
The second main line of the bear logic is "high rates suppress the elasticity of valuations and capital inflows." In the context of high-risk-free yields, new capital entering the highly volatile crypto assets requires higher return expectations as compensation, which is not easy to achieve given that valuations are already not low. For bears, the more attractive current strategy is to use futures and options to speculate on the potential volatility expansion before and after macro events, rather than significantly increasing positions in the spot market.
The hedging methods of bulls and bears in the derivatives market form the third main line of this round of games: bulls hedge extreme macro risks by buying medium- to long-term futures and allocating put options; bears capture opportunities for "expectation corrections" by shorting futures and selling out-of-the-money call options. The structural differences in open interest and leverage ratios between CME and Binance reflect this game among different participant groups: regulated entities tend to favor risk parity and hedging, while crypto-native capital assumes more directional risks during certain periods.
Structural Observation: Who is Leading This Round of Pricing?
Combining the above factors, it can be seen that the repricing around January and March interest rate expectations is not a victory of a single capital or narrative, but a multi-layered game among "institutional capital, crypto-native capital, and macro traders."
On the institutional capital side, CME Bitcoin futures open interest has fallen to its lowest level since February 2024, indicating that funds participating in Bitcoin exposure through regulated futures are becoming more conservative, which may be related to multiple factors such as the high interest rate environment, year-end risk control tightening, and balance sheet management, rather than just a cooling interest in crypto itself. Meanwhile, the demand for more refined tools (such as the TAS functionality for SOL and XRP futures) indicates that institutions are still preparing for larger-scale risk exposure management in the future.
On the crypto-native capital side, the leading open interest in Bitcoin futures on platforms like Binance reflects the increasing importance of high-frequency and medium-high leverage funds in the current structure. These funds are also sensitive to the macro interest rate path, but their responses are more trading-oriented: balancing the contradiction between "wanting to participate in volatility" and "fearing macro reversals" by shortening holding periods, dynamically adjusting leverage multiples, and hedging positions.
In terms of on-chain and off-chain capital, under the high interest rate backdrop, indicators such as the issuance of dollar alternative assets like USDT and USDC, off-chain quote spreads, on-chain active addresses, and large transfer behaviors will be key windows to observe "whether there is a new round of fiat inflows or outflows." Within the visible sample range, the structure of crypto capital is shifting from "uniform long driven by a single rise" to "coexistence of multiple strategies and cycles," which disperses the market's sensitivity to a single macro variable but also increases the possibility of localized liquidations and liquidity vacuums.
Compared to previous rounds of "rate hikes → pauses → rate cuts," the difference in this round is: first, the inflation path is more complex, with sticky service sector inflation and supply-side disruptions intertwining, making it more difficult for the Fed to provide clear, unidirectional easing commitments; second, the institutionalization and product diversity of the crypto market itself are higher, causing changes in interest rate expectations to no longer be reflected solely through spot prices, but rather through the interplay of basis, implied volatility of options, and price differentials between different exchanges and varieties.
Market Outlook: Crypto Market Paths Under Three Scenarios
In the coming months, the evolution of the crypto market can generally swing between three scenarios: the baseline scenario, the optimistic scenario, and the pessimistic scenario. It is important to emphasize that the following is based on conditional extrapolations from the current CME "Fed Watch" and public data, and subsequent economic data and Fed communications may adjust market pricing at any time.
In the baseline scenario, if rates are maintained at the current >80% probability in January, with a maximum cumulative slight rate cut of 25 basis points around March, and inflation and employment data continue to show a moderate decline, then the crypto market is likely to present a pattern of "range-bound bottoming + structural rotation." Bitcoin, as a macro β and consensus anchor, may oscillate repeatedly within a not extremely extreme price range, with capital rotation more reflected in the relative performance between the Ethereum ecosystem, Solana ecosystem, and some high-liquidity altcoins, rather than an exponential main rally. Futures basis and implied volatility of options may experience a brief rise around macro meetings, but overall leverage levels are suppressed by high interest rates, making it difficult to form a high-leverage bull market structure like that of 2020-2021.
In the optimistic scenario, if inflation data shows a faster-than-expected decline in the coming months, with PCE and CPI significantly below the upper target range for several consecutive months, coupled with a moderate cooling of the job market, the Fed may provide clearer guidance on the rate cut path in March or even earlier. In this case, the implied probability curve of federal funds futures will be repriced towards "earlier and faster." Under this scenario, Bitcoin and mainstream coins may enter a period of macro-driven valuation expansion. In this scenario, the resilience ranking of crypto assets is likely to remain: Bitcoin as the primary beneficiary, followed by Ethereum and leading public chains, and then high-risk, high-elasticity thematic coins. Institutional capital may quickly increase positions through compliant channels like CME futures and ETFs, while crypto-native capital leverages this volatility, leading to synchronized increases in trading volume and volatility.
In the pessimistic scenario, if inflation shows unexpected stickiness, or even rises repeatedly in the coming months, the Fed may have to reinforce its stance of "higher for longer" in communications, and even consider the possibility of tightening again. In this path, the implied probability of federal funds futures will be repriced towards "delaying or even compressing rate cuts," forcing a correction of the current optimistic expectations surrounding easing in 2025. The crypto market faces risks in this scenario, including: existing long leverage being squeezed, chain reactions triggered by crowded trades being liquidated, and tightening of some off-chain financing channels. Bitcoin and mainstream coins may first complete the "de-bubbling" process through price declines, while high-leverage altcoins may suffer larger declines and liquidity discounts.
In these three scenarios, what investors really need to focus on is not the single point issue of "whether to cut rates by 25 basis points in January," but rather how the overall shape of the interest rate expectation curve adjusts continuously with economic data and Fed communications. In the coming months, non-farm employment, core PCE, FOMC meetings, and post-meeting statements will be key nodes to observe the direction of expectation adjustments, while signals from the crypto market itself can be cross-validated through dimensions such as futures basis, open interest on platforms like CME and Binance, changes in the issuance of USDT and USDC, and large on-chain transfers.
In a world of "high rates for longer," the crypto market does not need emotional binary judgments of "bull market/bear market," but rather continuous tracking of data and sensitive capturing of structural changes. The interest rate path is just one of the macro variables, but at this stage, it is the core anchor for explaining funding costs and risk preferences, and a necessary starting point for understanding the deep logic of the bull-bear game.
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