Bitcoin and Ethereum climbed higher on Tuesday while much of the crypto market flashed red, as traders braced for the US Federal Reserve’s final interest rate decision of 2025. The apparent disconnect – blue-chip coins rising as altcoins and stablecoins weaken – reflects a broader shift in risk appetite and positioning ahead of a pivotal policy announcement.
The Fed’s December meeting began on Tuesday, December 9, and will conclude with a rate decision on Wednesday at 2:00 p.m. ET. Markets are overwhelmingly pricing in a 0.25 percentage point rate cut, which would be the third reduction this year. Data on interest rate futures suggests roughly a 90% implied probability that the Fed follows through with that move.
Prediction markets are leaning the same way. Participants are largely betting on a modest 25 basis point cut, influenced by signs of cooling in the labor market and growing fears that economic momentum is losing steam. A softer jobs backdrop typically encourages central banks to ease policy, but it also stokes anxiety about corporate earnings and consumer demand — a combination that can make investors more cautious about risk-heavy assets.
Historically, Bitcoin has tended to benefit from lower interest rates. When yields on traditional safe assets like government bonds fall, non‑yielding assets such as Bitcoin often become more attractive on a relative basis. Rate cuts can also weaken the dollar, which in past cycles has supported Bitcoin and other major cryptocurrencies.
This time, however, the reaction has been more nuanced. Earlier rate cuts in 2025 triggered short-lived dips in Bitcoin and broader risk assets, underscoring that traders are no longer focused solely on the size of the move. Instead, markets are laser-focused on Federal Reserve Chair Jerome Powell’s messaging: his tone at the press conference, any hints about the pace of future cuts, and the Fed’s view on inflation and growth. Liquidity conditions and forward guidance are increasingly driving price action, rather than the headline rate number alone.
Despite the choppy backdrop, both Bitcoin and Ethereum were in positive territory by late Tuesday afternoon. As of around 4 p.m. EST, Bitcoin had gained roughly 2.6% on the day, while Ethereum outperformed with an advance of about 6%. That strength contrasted sharply with the broader altcoin complex, which was largely trading lower by midday. The divergence highlights a familiar pattern: when volatility picks up and uncertainty rises, capital tends to rush into the most established, liquid crypto assets first.
Analysts note that if the Fed signals more easing ahead – either later in 2025 or in early 2026 – it could eventually fuel a stronger rally in major cryptocurrencies, even if the short-term reaction around the decision is volatile. Lower borrowing costs and easier financial conditions usually encourage speculative activity, which has historically been positive for crypto. But in the near term, the market is working through a bout of risk reduction that is particularly painful for smaller, more speculative tokens.
One of the clearest signs of this cautious mood is what’s happening in stablecoins. Data compiled by Nansen indicates that stablecoin balances held on centralized exchanges have plunged to about 86 billion dollars, the lowest level since October. That figure has dropped sharply from a recent peak near 94 billion on November 6. Such a rapid decline points to investors pulling capital out of the trading ecosystem or parking funds in off-exchange venues perceived as safer.
Stablecoin outflows from exchanges often coincide with a “risk-off” environment. These tokens are the primary liquidity rails of the crypto ecosystem; when balances shrink, it can indicate that traders are cashing out to fiat, moving to custody solutions, or simply sitting on the sidelines. Less stablecoin liquidity typically means thinner order books, wider spreads, and more pronounced price swings — conditions that tend to hurt altcoins disproportionately.
At the same time, the derivatives market is also in retreat. Data from CoinGlass shows that futures open interest – the total notional value of outstanding futures contracts – has slipped by about 0.3% over the last 24 hours to around 130 billion dollars. While that may sound like a modest move, it comes on top of a broader downtrend in leverage. Funding rates in perpetual futures have also flattened, a sign that the once-aggressive bullish positioning has cooled significantly.
Shrinking open interest and subdued funding indicate diminished demand for leveraged bets, especially on smaller tokens. In recent years, futures and perpetual swaps have dominated crypto trading volumes, often amplifying both rallies and crashes. When this leverage is unwound, prices can fall quickly, and any bounce driven by short covering can be fleeting if new buyers do not step in.
That’s precisely the concern many traders have about the latest pullback. The recent recovery in prices is increasingly being interpreted as a temporary rebound within a broader downtrend, rather than the start of a new bull market. In market slang, this is often described as a sharp bounce in a falling asset that ultimately gives way to renewed declines once speculative buying exhausts itself. The pattern is familiar: a violent selloff, a relief rally fueled by shorts closing positions, then another leg lower as fundamentals and macro fears reassert themselves.
There are three key reasons why many expect Bitcoin and altcoins to be vulnerable after the Fed’s rate announcement, even if a cut does materialize:
1. “Sell the news” risk
Markets have been pricing in a 0.25% cut for weeks. When an outcome is heavily anticipated, the actual event can trigger profit-taking instead of further gains. Traders who bought Bitcoin and Ethereum in anticipation of easier policy may choose to lock in profits once the decision hits, especially if Powell’s tone is cautious or if the Fed projects fewer cuts ahead than markets are hoping for.
2. Risk rotation within crypto
The current environment shows a rotation into perceived “quality” within digital assets: Bitcoin, Ethereum, and a handful of large-cap names. As capital consolidates around these leaders, smaller altcoins often suffer outflows. If macro conditions remain uncertain or earnings data disappoints, investors may continue to scale back exposure to volatile, illiquid coins, even if the headline indexes look relatively stable.
3. Macro uncertainty beyond the Fed
Even with rate cuts, concerns about global growth, corporate margins, and geopolitical tensions are elevated. Rate reductions can sometimes be read as a signal that policymakers are worried about the economy, which dampens risk appetite. In that setting, crypto is still seen as a high‑beta asset class: when fear rises, it tends to move down faster than stocks, and altcoins usually lead those declines.
A crucial nuance often overlooked is that monetary easing does not immediately translate into a flood of new money into crypto. Banks, funds, and large institutions typically adjust their portfolios gradually. After a year of intense volatility and regulatory scrutiny, many professional investors remain cautious about ramping up exposure overnight. This lag can create a frustrating gap between optimistic macro narratives and the actual flow of capital into digital assets.
Another reason for the current turbulence is the state of market liquidity. With stablecoin balances shrinking and leverage being pared back, order books are thinner than they were earlier in the year. In such conditions, modest sell orders can have an outsized impact on prices, particularly in smaller tokens. That dynamic helps explain why Bitcoin and Ethereum can still manage modest gains while an index of altcoins slides: the majors benefit from deeper liquidity and stronger demand, while the long tail of tokens suffers sharper markdowns.
For individual investors, these cross-currents can be confusing. On one hand, a cycle of rate cuts and potential dollar weakness appears supportive of Bitcoin and Ethereum over the medium term. On the other, near-term deleveraging and risk reduction create a hostile backdrop for aggressive altcoin bets. Navigating this tension often comes down to time horizon and risk tolerance. Short-term traders may need to respect the possibility of another leg lower following the Fed decision, especially in highly speculative names.
Longer-term holders, particularly those focused on Bitcoin and Ethereum, are more likely to pay attention to the overall trajectory of policy through 2025 and into 2026. If the Fed ultimately delivers a series of cuts and financial conditions ease sustainably, the structural case for digital assets as an alternative, non-sovereign store of value and a high‑beta technology play could regain momentum, even if the path there is volatile.
It’s also worth noting that the internal dynamics of the crypto ecosystem are changing. Regulatory pressures, the rise of institutional-grade custodians, and shifts in stablecoin dominance are all reshaping how liquidity flows. As compliance requirements increase, some trading venues have tightened risk controls, further limiting leverage and speculative activity. This environment may favor more robust projects with clear use cases and strong balance sheets, while weaker or purely narrative-driven tokens lose ground.
Going into the Fed decision, the market is thus balancing two opposing forces: the promise of easier money in the months ahead, and the reality of a risk-averse, deleveraging market in the here and now. Bitcoin and Ethereum’s modest gains signal that not all confidence has evaporated. Yet the steady drain of stablecoins from exchanges, weakening futures activity, and broad altcoin underperformance are clear reminders that the current phase is one of consolidation and caution rather than unbridled risk-taking.
In the days following the rate announcement, attention will likely shift quickly from the number itself to Powell’s comments and the Fed’s updated projections. Any hint that policymakers are worried about inflation reaccelerating, or that they might slow the pace of cuts, could pressure crypto again. Conversely, if the Fed acknowledges economic fragility and signals a willingness to support markets more aggressively, the stage could be set for a more durable rebound once the current wave of selling and deleveraging has run its course.