Cryptocurrency market under three powerful drivers: From central bank interest rates to investor sentiment

The cryptocurrency market experienced a remarkable recovery on December 10, driven by a combination of monetary policy expectations, improved investor sentiment, and robust institutional capital inflows. Bitcoin climbed back to the $91,990 mark, while altcoins such as Artificial Superintelligence Alliance (FET) reached $0.30, Zcash (ZEC) traded at $412.69, Cardano (ADA) at $0.40, and Avalanche (AVAX) at $13.98, making them the day’s winners.

Fed Decision as Catalyst: Interest Rate Expectations Shape Market Dynamics

The upcoming December Federal Reserve meeting serves as a key market price catalyst. Prediction markets like Polymarket and Kalshi indicate a 97% probability that the Fed will cut the federal funds rate by 0.25 percentage points, bringing the target rate between 3.50% and 3.75%. This expected easing follows immediately after the end of quantitative tightening, during which assets worth triple-digit billions were withdrawn from the market.

The interest rate structure over longer maturities—particularly the 10-year swap rate—also signals a declining financing cost environment. The SOFR overnight rate remains at its monthly low, underscoring a stable liquidity environment. Only a surprise would occur if fiscal hawks within the Fed shift the dovish stance, leading to no rate hikes.

Historically, the crypto market benefits from rate cuts through increased risk appetite. However, there is a scenario where prices may retreat after the expected announcement, as the positive outcome is already priced in—similar to XRP, which initially corrected after ETF approval.

Fading Fear as a Second Catalyst

The Crypto Fear and Greed Index, aggregated from CMC data, is at a turning point. The indicator rose from a low of 8 points a few weeks ago into the fear zone at 30 points. If this trend consolidates, it signals an imminent move toward the neutral zone.

Bullish market movements in cryptocurrencies typically occur when the index reaches extreme greed levels. The recent brushing of this zone provides a technical buy signal. A reliable sign of diminishing risk aversion is the gradual accumulation of leveraged positions: the open interest in futures increased by 3.6% in the last 24 hours to $133 billion. Simultaneously, short positions worth over $434 million were closed, indicating a shift in conviction toward long positions.

Institutional Capital Inflows: The Third Pillar of the Rally

The momentum of institutional money flows further supports this recovery. Bitcoin and Ethereum ETFs saw capital inflows at the start of the current market movement on Tuesday. Altcoin-focused products—including XRP ETFs, Solana ETFs, and Chainlink ETFs—continue to experience strong demand from American investors.

The XRP ETF surpassed a symbolic threshold of $1 billion in inflows less than a month after launch. Institutional capital aggregators like MicroStrategy and other Bitcoin accumulators increased their reserves in recent trading days by over $900 million, while Ethereum holdings were also increased—behavior indicating rising buying conviction.

The Scenario of a Temporary Upswing

Despite this convergence of favorable factors, a systemic risk remains: the current recovery could turn out to be a “Dead Cat Bounce”—a temporary price spike during a sustained downtrend. This warning deserves consideration, as the stability of the rally depends on both monetary easing and sentiment improvement becoming self-sustaining, rather than merely tactical rebounds.