How the Fed and Bank of Japan's decisions could change the crypto market in December

December began with a challenging financial market environment. On the one hand, market participants are almost certain of a US Federal Reserve rate cut. On the other hand, talk of a possible rate hike by the Bank of Japan is growing. This combination of factors creates uncertainty and makes Bitcoin's movement less predictable.

Expectations of a Fed Rate Cut

Blogger Coin22 offered his perspective on the situation, noting that the probability of a 0.25% rate cut in December is already above 80%. Just a couple of weeks ago, the situation looked different, but updated inflation and labor market data quickly changed analysts' estimates.

Inflation rose 0.3% in September, matching a similar increase in August. Core inflation increased 0.2%. Annual indicators are gradually moving toward the 2% target. Consumer spending is growing more slowly: 0.3% versus the previous 0.5%. Coin22 emphasizes that this trend indicates a clear economic slowdown, which, in the current situation, is pushing the Federal Reserve to ease its monetary policy.

Liquidity is beginning to flow into the system

Coin22 also notes that the Fed has effectively begun to act early. The volume of reverse repurchase (REPO) transactions has reached $13.5 billion. The US Treasury is actively buying back government bonds, reducing their supply on the market. This is leading to lower bond yields and a gradual shift of capital into riskier assets.

According to Coin22, inflows into crypto funds reached $740 million in a week, open interest grew by 12%, and stablecoin turnover increased by approximately $2.1 billion. This is not simply short-term activity, but a sign of systemic interest in cryptocurrencies amid growing liquidity.

Bank of Japan Impact

Amid expectations of a Fed rate cut, the Bank of Japan may take the opposite decision and raise its interest rate. This creates additional market uncertainty. Market participants will closely monitor the actions of the Japanese regulator, as any change in its policy could have a significant impact on global financial flows.

Inflation Expectations

The US CPI inflation report will be released on December 10. Coin22 believes that lower readings will strengthen expectations of further economic support from the Fed, which could lead to increased interest in cryptocurrencies. If the data turns out better than expected, this could trigger a short-term rise in the prices of Bitcoin and other crypto assets.

In Conclusion

Therefore, December promises to be an important month for the cryptocurrency market. Expectations of a Fed rate cut and a possible rate hike by the Bank of Japan create a complex and uncertain environment. Market participants should be prepared for volatility and closely monitor macroeconomic indicators that may influence their investment decisions.