Key Insights:
- Crypto market eyes recovery as the Federal Reserve concluded its three-year quantitative tightening program on December 1.
- Markets priced in roughly 90% odds of a 25-basis-point rate cut at the December 9-10 FOMC meeting after Powell’s silent speech on December 2, which avoided new guidance.
- The crypto market responded with a modest bounce as Bitcoin tested key cost-basis support near $81,000, and on-chain data showed elevated realized losses alongside defensive options positioning.
The Federal Reserve officially ended quantitative tightening (QT) on December 1, removing a structural headwind that drained liquidity from markets for three years.
Traders pushed the probability of another rate cut at the December 9-10 FOMC meeting to roughly 90%, creating a compressed macro window for the crypto market.
Fed Concluded Balance Sheet Runoff After Three Years
On October 29, the Federal Open Market Committee cut the federal funds rate by 25 basis points to 3.75-4.0% and announced it would conclude the securities holdings reduction on December 1.
The New York Fed rolled over maturing Treasuries and reinvested principal from mortgage-backed securities into Treasury bills.
The balance sheet fell from $9 trillion at the 2022 peak to $6.6 trillion, a $2.2 trillion reduction. This has sparked hopes over a potential recovery in the crypto market ahead.
The Fed’s November report cited rising money-market stress. Firmer repo rates and increased use of the Standing Repo Facility signaled that policymakers had approached the lower bound of ample reserves.
Analysts framed this as a shift to maintenance mode. Policy remained restrictive via rates, but the balance sheet drain ended, which markets read as mild easing.
Powell Stayed Silent as Rate-Cut Odds Repriced
Federal Reserve Chair Jerome Powell appeared at Stanford on December 2, but his remarks avoided economic conditions or monetary policy. Powell devoted the speech to George Shultz, fitting the pre-meeting blackout pattern.
After the October 29 meeting, Powell told reporters a further cut was not foregone but noted rising employment risks, which markets interpreted as dovish.
Traders pushed the implied probability of another 25 basis-point cut to 80% in late November, up from 30%days earlier. Recent commentary placed that probability near 90%.
This development, if happens, could provide the much-needed boost the crypto market.
Barclays argued Powell would likely push for another cut over objections from hawkish colleagues, noting November speeches left the Committee divided but leaning toward easing.
Crypto Market Watched Liquidity Injections and Cost Basis
The halt of quantitative tightening removed a headwind from the crypto market. The New York Fed conducted large repo operations as QT ended, injecting $13.5 billion via overnight repo on December 1, in addition to $25 billion earlier that day.
That combination historically supported long-duration risk assets, including Bitcoin.
As Reuters reported, strategists expected 10-year Treasury yields to drift toward the high-3s, lowering the real-yield hurdle for non-yielding assets.
Bitcoin bounced 2.4% and traded at $88,365.99 as of press time, with traders reacting to liquidity injections. Yet, a Glassnode report from November 26 painted a cautious picture.
As Bitcoin remains in the $81,000-$89,000 range after losing key cost-basis support, the short-term holder’s cost basis is $104,600, well above current trading levels.
Realized losses climbed to $403.4 million per day on a 30-day moving average. The short-term holder Realized Profit/Loss Ratio collapsed to 0.07x, confirming that liquidity evaporated after heavy demand absorption in the second and third quarters.
The long-term holder ratio dropped to 408x, still healthier than the first quarter of 2022 or the major bottom phases. Long-term holders still realized profits, not losses.
However, if this ratio compressed toward 10x or lower, the probability of a deeper crypto bear market would rise substantially.
Crypto Market Derivatives Showed Defensive Positioning
Futures open interest fell alongside prices, unwinding leverage built during earlier rallies. Deleveraging remained orderly, with little forced liquidation, reflecting a risk-off posture.
Perpetual funding rates hovered near neutral, marking a shift from positive funding typical of speculative phases.
Options open interest surged to its highest level in Bitcoin-denominated terms, though below the late-October peak when Bitcoin traded near $110,000.
The strike distribution showed heavy put concentration near $84,000 and growing call interest around $100,000.
Dealers were short gamma on puts and long on calls, implying capped upside while downside risk had not cleared. This has sparked discussions among crypto market traders.
One week, put skew dropped from 18.5% to 9.3%, pricing out immediate crash risk. The six-month skew nearly doubled, reflecting concern about a prolonged bearish path into 2026.
Balance Sheet Halt Returned Fed Put Perception
The end of quantitative tightening marked the conclusion of a multi-year liquidity drain. The Fed shifted to a stance in which rates did the work while the balance sheet remained stable.
Halting runoff in response to repo stress reinforced the Fed’s willingness to step in before liquidity strains spiral, supporting risk sentiment.
The crypto market bounce case for December hinged on easier dollar liquidity, lower real yields, and intact demand from exchange-traded funds and large holders.
The risk case centered on a surprise no-cut decision or hawkish dot plot, keeping Bitcoin volatile.
The macroeconomic table is set. Now, Bitcoin must reclaim key cost-basis levels above $104,000 to trigger a December recovery.