Behind the 87.4% Probability of Interest Rate Cuts: The crypto market is experiencing a "expectation exhaustion" crisis.

When the CME "Fed Watch" pushed the probability of a 25 basis point rate cut in December to 87.4%, the market no longer faced the suspense of "whether to cut or not," but rather the brutal test of "what happens after the cut." This number was refreshed on the morning of December 1, 2025, seemingly rolling out the red carpet for risk assets, but in reality, it may have already overdrawn the positive outlook to a dangerous edge.

The data itself is real: the probability of the Federal Reserve cutting interest rates by 25 basis points in December is indeed as high as 87.4%, while the probability of keeping it unchanged is only 12.6%; the cumulative probability of a 25 BP cut in January next year is 67.5%, and 50 BP is 23.2%. However, what is more worrisome is that the 87.4% figure has remained for several days, indicating that the market has fully priced in the interest rate cut with real money—when consensus approaches 100%, true price fluctuations often come from "worse than expected" black swans.

Illusion of Liquidity: Why a Rate Cut ≠ Inevitable Rise

History has shown that when a loose monetary policy cycle begins, the first wave of growth in the crypto market always occurs during the "expectation formation period," rather than at the "realization time." On December 19, 2024, when the probability of interest rate cuts soared to an absolute high of 98.6%, Bitcoin actually fell by 6% within 48 hours after the rate cut was implemented. This is because:

1. Arbitrage funds withdraw in advance: Institutions sell futures contracts and buy spot at the peak probability, completing basis arbitrage, with the moment of interest rate cut being the time to close positions.

2. Risk premium reset: After the confirmation of interest rate cuts, the market's focus immediately shifts to "how many more times next year". If the Fed's dot plot shows only 2-3 rate cuts in 2026, it will be significantly below current market expectations, triggering a reversal of sentiment.

3. The logic of the weakening dollar is questionable: interest rate cuts do lower the dollar, but if the central banks of Europe and Japan also adopt easing measures, the relative strength of the dollar may not necessarily align with the crypto market bull run.

Currently, although Bitcoin ETFs have resumed net inflows, the inflow of 71.37 million USD on November 28 is merely a "hedge" against BlackRock's IBIT single-day outflow of 114 million USD. Institutions are switching positions rather than singing in unison.

The Truth About ETF Fund Flows: Who is Buying and Who is Selling?

On the surface: ARKB had a net inflow of $88.04 million, and FBTC had an inflow of $77.45 million, indicating that institutions are regrouping.

The essence is: clients of BlackRock IBIT (pension funds, endowment funds) lock in profits at the end of the year, while clients of ARK and Fidelity (hedge funds, high-net-worth individuals) are betting on policy games. This is a turnover between "allocated funds" and "trading funds," not a frenzy of incremental funds.

A more authentic signal comes from the Coinbase Premium Index ending 22 days of negative values — this indicates a reduction in selling pressure domestically in the U.S., but does not mean that buying interest is surging. The shift to positive premium reflects more of a reluctance to sell from sellers rather than aggressive buying from buyers. In the least liquid month of December, this "exhaustion of sell orders" can easily be misrepresented as "revival of buy orders", when in fact it is a fragile manifestation of insufficient market depth.

The fatal misconception of retail investors: chasing highs in "certainty".

87.4% probability, a sense of security for retail investors, and a risk alert for institutions.

• The options market has hidden traps: The BTC options expiring on December 27 at Deribit have a concentration of open interest for call options in the range of $95,000-$100,000, while put options are dense at $85,000. Institutions are harvesting retail FOMO sentiment by selling out-of-the-money call options, and the premium income has become a stable cash flow in the bear market.

• The leverage wash is far from complete: Although the original text states "the leverage wash is complete", on-chain data shows that the perpetual contract funding rate remains high at 0.01%-0.03%, indicating that long leverage is still crowded. A true wash requires the funding rate to turn negative and liquidation volume to exceed $500 million, and the current conditions are not met.

• Technical Indicator Overbought Trap: The hourly RSI has reached 65, and the 4-hour level is approaching 70, entering "technically overbought" territory. Before macro events, overbought conditions often trigger early profit-taking, leading to a rapid pullback after a false breakout.

The dilemma of retail investors lies in treating institutions' "hedging strategies" as "guidance" and mistakenly believing that probability consensus guarantees profit.

Scenario Simulation: Three Possible Paths and Countermeasures

Scenario A: The interest rate cut of 25 basis points in December is as expected, and the dot plot is dovish (probability 30%)

• Market Performance: BTC briefly surged to $93,500 before quickly retreating to $90,500, while ETH showed weak follow-up.

• Operation: Do not chase high prices, wait for a pullback to add positions at 89000 USD; if holding spot, can sell December call options (Covered Call) above 93000 USD to increase returns.

Scenario B: Rate cut as expected but dot plot is hawkish (Probability 50%)

• Market performance: BTC plummeted to $86,500 after a false breakout above $91,500, while ETH remained relatively resilient due to the staking narrative.

• Operation: Set a take profit at $91,500 in advance, retaining 50% cash; if it unexpectedly falls to $85,500, then buy a 3-month call option (expecting another interest rate cut in Q1 2026)

Scenario C: Unexpected pause in interest rate cuts (Probability 12.6%)

• Market Performance: BTC plummeted over 8% in a single day, testing the previous low of $81,000, while ETH liquidated staking leverage.

• Operation: In this scenario, do not catch the bottom; wait for the market to digest for 48 hours, then observe whether the US dollar index breaks below 106, and decide whether to enter the market.

True Alpha: Positioning in the "Expectation Gap"

Instead of betting on the 87.4% consensus, it's better to seek asymmetric opportunities brought by the "expected difference":

1. Ethereum Staking ETF: If the SEC approves the staking feature before December 20, ETH will unlock the "bonding" logic, and funds may shift from BTC to ETH, leading to a decline in the BTC/ETH exchange rate. It is advisable to position in the ETH/BTC trading pair in advance.

2. The liquidity black hole of altcoins: Under the blood-sucking effect of mainstream coins, small and medium market cap coins may suffer losses. However, Solana, due to its ETF expectations and on-chain activity, may rise against the trend, forming a "mainstream platform, altcoins performing" pattern.

3. Inter-period arbitrage: The current annualized basis between the December and March futures contracts is about 8%. If the basis expands to over 12% after a rate cut, it is possible to sell the near month and buy the far month for arbitrage.

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Conclusion: 87.4% is the institutions' "exit ticket", not the retail investors' "entry ticket".

When the market is in a near-certain excitement for interest rate cuts, smart money is looking for unexpected pricing of "down but still falling" or "no cut but rising instead." The most dangerous decision for retail investors is to chase volatility at the highest probability point.

Operation Suggestions:

• Do not increase your position above $91,500, as this is the worst risk-reward ratio.

• Use options to replace spot, buy call options with a strike price of $89,000 (premium approximately $1,200), locking in upside gains while controlling downside risk within the premium range.

• Pay attention to the PCE data on December 13. If the core PCE year-on-year is lower than 2.7%, the interest rate cut path for 2026 will open, and that will be the time to heavily invest.

The liquidity flood may really be here, but remember: in Wall Street's pool, retail investors are never the ones filling it up, but rather the ones knocked over by the waves. A probability of 87.4% is merely an invitation card left by institutions for the market, "please step into the trap." The real winners are those waiting for a second confirmation when the probability drops from 87.4% to 60%.