Bitcoin surges on expectations of a Federal Reserve rate cut: Can the cryptocurrency rally continue?

The Federal Reserve's Beige Book: The economy is stable but the cracks are widening.

The Federal Reserve's latest Beige Book cautiously and meaningfully paints a picture of the current state of the U.S. economy. While economic activity in most regions has been described as "little changed" in recent weeks, the underlying tone is clearly more fragile. Consumer spending—particularly among low- and middle-income households—remains weak, with only high-end retail showing some resilience.

Employment, once the strongest pillar of the economic recovery, is now showing signs of cooling. Businesses report slower hiring, easing wage pressures, and a greater reliance on natural attrition rather than voluntary layoffs—a subtle but significant shift. Meanwhile, inflation remains…moderate but persistent price increases, though rising input costs are still being reflected in prices.

The Beige Book also highlighted a particular complication: the collection of federal economic data was interrupted due to the government shutdown that lasted until November 12. As a result, policymakers will not have access to complete labor market and inflation data for October and November at the December Federal Open Market Committee (FOMC) meeting, underscoring the importance of feedback from the real business environment, such as in these reports.

Despite a generally neutral tone, many businesses hinted that future growth momentum might slow. Manufacturers were slightly more optimistic than retailers, but the overall economic outlook was described as stable but with a risk of softening—a sentiment increasingly aligned with growing expectations of a policy shift.

JPMorgan Chase changes its interest rate cut timing strategy

It's worth noting that the Beige Book wasn't the only signal reshaping market expectations. This week, JPMorgan economists changed their view on the timing of Federal Reserve policy, now predicting... a rate cut in December—a stark contrast to a week ago when they expected the first action to occur in January.

This shift stemmed from a series of dovish comments from several key Federal Reserve officials, particularly New York Fed President John Williams. Williams' remarks suggested that a rate cut "in the near term" would not conflict with the Fed's inflation target. This change in tone was enough to prompt Chief Economist Michael Feroli and his team to adjust their forecasts.

The bank stated that the most likely path is a 25 basis point rate cut in December, followed by another cut in early January; however, they emphasized that uncertainty remains high until the next FOMC decision.

This shift highlights the rapid change in sentiment among policymakers and their interpreters. Just days earlier, stronger-than-expected September labor market data fueled market expectations that policy responses would be delayed. However, with economic weakness intensifying and inflationary pressures continuing to ease, the current trend has shifted towards implementing easing policies sooner rather than later.

Bitcoin's reaction: A test of sentiment and liquidity

Against this policy backdrop, Bitcoin has once again become a bellwether for real-time market sentiment. Over the past few days, Bitcoin volatility has intensified, initially pulling back in tandem with overall risk assets, before gradually recovering as market expectations for a December rate cut intensified.

Historically, Bitcoin has typically reacted positively to declining interest rate expectations, as lower borrowing costs and a weaker dollar tend to drive inflows into high-beta assets. However, this time, Bitcoin's reaction has been more cautious. Price action suggests that traders are closely monitoring changes in the macroeconomic landscape, but they are also waiting for concrete news rather than reacting purely out of speculation.

Some hesitation may reflect incomplete economic data resulting from the government shutdown. Given that the Federal Reserve itself also lacks some information on inflation and the labor market, the market appears cautious about a policy shift until the situation becomes clearer.

However, this trend is noteworthy: Bitcoin has been supported whenever the likelihood of a December rate cut increases—further solidifying its role as a barometer of liquidity expectations.

What's next?

With the market digesting the contents of the Beige Book and JPMorgan's revised forecasts, attention has now completely shifted to... the Federal Reserve's interest rate decision in mid-December. Since there is no complete inflation or employment data available before then, the Fed's communications in the coming days will play a crucial role in guiding market expectations.

If policymakers continue to signal accommodative monetary policy and financial conditions tighten further, the likelihood of a December rate cut will increase. However, if new data or statements indicate that market concerns about sticky inflation persist, the Federal Reserve may still wait until January to cut rates.

Looking to the future

If my expectations for a December rate cut are confirmed, the next phase for the cryptocurrency market is unlikely to be a sudden vertical reversal, but rather a structural transition. Since early October, digital asset trading has been defensive, with Bitcoin's price falling from a cyclical high to just over $80,000 before rebounding to around $90,000 as market sentiment shifted. This rebound reflects an important message: the market is not reacting to the current economic situation, but rather to the potential impact of cheaper capital a few months from now.

Historically, the first interest rate cut typically signals a shift in policy and institutional dynamics, but this doesn't necessarily mean an immediate market surge. Traders usually shift from caution to selective position building, only resuming their full risk appetite once liquidity recovers. In this environment, Bitcoin often leads the way, becoming one of the first beneficiaries of the easing financial conditions. Funds then gradually shift to Ethereum, mainstream secondary exchanges, industry hotspots like artificial intelligence or RWA, and ultimately flow into high-beta speculative tokens. The recent hesitation of altcoins also confirms this pattern—investors need confirmation, not just speculation.

Several macroeconomic signals will determine the strength and speed of the next upward move: the direction of the US dollar index, inflows into cryptocurrency ETFs and institutional products, and whether stablecoin supply begins to expand again after months of stagnation. If these indicators coincide with a confirmed interest rate cut, the market may transition from a stabilization phase to a new upward phase, driven not by speculation but by capital flows.

The recent rebound in Bitcoin prices suggests that investors are cautiously preparing for a more accommodative policy environment, but are still awaiting greater clarity. The next key juncture will arrive in mid-December, when the Federal Reserve will formally announce its policy decision. Until then, the market is trading not just numbers, but also expectations. And for the first time in months, these expectations are leaning towards easing rather than tightening.