Crypto Rally Hits a Bump Near $94K Bitcoin as Bond Market Turmoil Triggers Caution Ahead of Fed Meeting

The crypto market kicked off December with notable upward momentum, witnessing Bitcoin approach $94,000 and Ethereum nearing $3,250, as highlighted in a research note from Laser Digital.

Key Takeaways

The crypto market showed strong momentum at the start of December, with Bitcoin nearing $94,000.
Key drivers included significant BTC purchases and an upcoming upgrade, but enthusiasm faded as these events passed.
Rising bond yields and Federal Reserve expectations created a cautious atmosphere among investors.
There is a noticeable divergence in risk sentiment between equities and cryptocurrencies.
Market volatility is expected to increase due to impending central bank decisions and economic reports, despite a general easing of crypto volatility.

Crypto market

This rally was primarily propelled by two significant factors: Strategy's acquisition of approximately $960 million in Bitcoin and the anticipation surrounding the Fusaka upgrade set for December 3.

However, once these catalysts subsided, the bullish sentiment diminished rapidly. During the U.S. trading session on Friday, prices experienced a quick reversal, leading to a wave of selling. Although a minor bounce occurred over the weekend, this positive sentiment could not hold into Monday. Laser Digital observed that this pattern has been "typical behavior of the crypto market over the past few months."

Bond Yields Reach Multi-Decade Highs Amid Changing Policy Expectations

Macro conditions have exerted additional pressure on risk assets. The bond markets experienced a sell-off across major economies, initially led by Japan. The yield on Japan’s 10-year government bonds (JGB) exceeded 1.90%, marking a peak not seen in 30 years.

According to Laser Digital, this move followed increasing speculation regarding a potential rate hike by the Bank of Japan in December, alongside concerns related to higher bond issuance prompted by a larger-than-expected FY25 supplementary budget and anticipated changes for the FY26 budget.

In the U.S., the 10-year Treasury yield rose above 4.10%, as markets prepared for the Federal Reserve's policy meeting. Expectations for a “hawkish cut” this week—a reduction supported by strong forward guidance—contributed to a general decline in rate sentiment and risk appetite.

Diverging Trends in Equity and Crypto Markets

Gracy Chen, CEO of the universal exchange Bitget, observed that investors seem to assume the Fed's rate decision has already been predetermined. She noted, “According to CME Group’s FedWatch, Fed funds futures indicate almost a 90% probability of a 25 basis point cut, which aligns with the easing inflation and soft macroeconomic data. Interestingly, just a few weeks ago, this probability was below 40%.”

Chen pointed out a notable divergence in risk sentiment: “While the S&P 500 is up nearly 17% this year and sits approximately 4% below its October peak, U.S. equity funds recorded $3.5 billion in outflows last week, whereas global funds attracted $7.9 billion. Sadly, crypto is lagging significantly… A rate cut could help Bitcoin rebound towards the $94,000 to $96,000 range. Conversely, a cautious approach might push its value back down to the $80K level.”

Anticipation Grows for a Busy Central Bank Week

Laser Digital anticipates that option markets are predicting increased volatility leading up to the Federal Open Market Committee (FOMC) decision. The trading desk foresees “choppy price action this week and next,” noting a packed schedule that includes the Fed on December 10, the Bank of Japan (BOJ) on December 19, and two critical labor reports in the interim.

Market attention is focused on the Fed’s revised Summary of Economic Projections (SEP) dot plot and any possible adjustment to the terminal rate path, both of which could significantly influence market positioning as the year comes to a close.

Crypto Volatility Drops, Yet Event Risk Persists

While crypto volatility has receded from recent peaks, markets are still pricing in significant event risk. Bitcoin trade volumes are hovering around the 45-volatility mark, while Ethereum is around 70-volatility. Event volatility for December 11 stands at 56v for Bitcoin and 75v for Ethereum.

Laser Digital remarked that the correlation between spot and implied volatility remains negative—a trend that has taken root. With macroeconomic factors dominating and short-term catalysts fading, markets appear prepared for a turbulent spell as central banks take center stage.