The Federal Reserve's interest rate cut marks the beginning, and crypto assets face a short-term rebound with a long-term test

Policy Shift Sparks Market Bullish Sentiment, but Rising Yields Hide Risks

The Federal Reserve’s December interest rate decision is imminent, and market expectations are heating up. According to the latest information, several Fed governors appointed by Trump lean toward supporting a rate cut in December. This policy shift triggered buying in crypto assets on Tuesday (December 9). Bitcoin surged by 2.26% that day, while Ethereum temporarily soared over 8%, reaching a recent high near $3,400. However, the sustainability of this upward momentum remains to be seen.

Policy Expectations Driven, but Liquidity Improvement Is the Core

The Federal Reserve officially ended quantitative tightening (QT) on December 1. Since the start of the tightening cycle in June 2022, the Fed has withdrawn approximately $2.4 trillion in liquidity from the financial system, second only to the tightening period from 2017 to 2019. The end of quantitative tightening means the market no longer faces active liquidity withdrawal, providing a more stable financing environment for risk assets.

Signals from Fed officials also support easing expectations. Although U.S. job openings in October increased slightly to 7.67 million, recruitment momentum weakened, layoffs increased, indicating the labor market continues to slow. Balancing employment and inflation targets, the Fed may adopt a “cut first, then set limits” approach—initially lowering rates by 25 bps, followed by hints that easing space in 2024 will be limited.

Ethereum’s Excessive Gains Behind the Rise

Ethereum has recently outperformed Bitcoin significantly. The market generally attributes this to heightened investor expectations for staking-based ETFs and a renewed outlook for asset tokenization applications. Ethereum has gained over 10% this week, reflecting optimistic expectations for its application layer development.

However, the main driver of the overall crypto rebound remains the improved liquidity outlook. Currently, Bitcoin is priced at $87.64K, and Ethereum at $2.95K, short-term benefiting from liquidity inflows. But investors should be cautious about whether this rebound can evolve into a deeper reversal, with the key being the alignment of subsequent policy pace and market expectations.

Hidden Risks Cannot Be Ignored

Global bond yields continue to rise, becoming a current concern. Even if the Fed cuts rates as expected, if the bond market begins to doubt the new Fed chair’s policy independence, the Fed might be forced to turn to quantitative easing (QE) to lower long-term borrowing costs. Particular attention should be paid to the potential impact of the Bank of Japan’s rate hikes—when the yen’s appreciation expectations strengthen, large carry trades may unwind, impacting risk assets.

It is noteworthy that, despite rate cut expectations and the end of QT, U.S. Treasury yields continue to climb, creating a contradictory phenomenon that signals deep concerns about economic prospects. Compared to stable, long-term stocks (such as high-dividend stocks with over 7% yield for 20 consecutive years), crypto valuations remain relatively volatile. Investors should view crypto assets as part of risk asset holdings rather than core allocations.

Ethereum Technical Outlook: Seeking Direction in Consolidation

Ethereum’s daily chart shows a sustained rebound since November 21, successfully breaking above the $3,000 level. The upward trend shows no signs of ending, and it is expected to consolidate between $3,000 and $3,600, building a mid-term bottom structure through time rather than price. Close attention should be paid to the time window around December 12, which could become a key point for market direction judgment.

In summary, the short-term rebound in crypto assets benefits from policy expectations and liquidity improvements, but a reversal is still premature. Investors should enjoy the rebound gains while closely monitoring bond market movements, central bank policy details, and changes in correlations with traditional assets such as high-yield stocks.