Options market bets on the Federal Reserve holding steady all year, causing crypto assets to flow out accordingly.

The market’s expectations for a rate cut by the Federal Reserve in 2026 have completely reversed. According to the latest news, options traders are significantly adjusting their positions, shifting from bets on rate cuts to bets on maintaining the current interest rate throughout the year. This shift can be traced back at least to last Friday’s US employment data release. The unexpected decline in the unemployment rate has nearly eliminated the possibility of a Fed rate cut this month and has triggered a chain reaction affecting capital flows across the entire crypto market.

Clear Signals from the Options Market

From Expectation of Rate Cuts to Zero Rate Cuts

Based on market pricing, the likelihood of the Fed cutting rates in January has almost disappeared. TJM Institutional Services rate strategist David Robin pointed out that, from a data perspective, the probability that the Fed will keep rates unchanged at least until March has increased, and as each meeting date passes, the chances of maintaining stable rates grow larger.

What does this mean? Traders’ betting directions have undergone a fundamental change. Newly established options positions are mainly concentrated in March and June contracts, used to hedge scenarios where the Fed’s next rate cut is continuously delayed. More aggressive traders are betting on the Fed maintaining rates unchanged throughout the year, with these longer-term positions expected to profit from this stance.

Options Flows Signal a Hawkish Tone

Options flows tied closely to the Fed’s short-term benchmark interest rate have recently conveyed a more hawkish signal. Robin stated that whether the market truly believes the Fed will hold steady or not, the cost of these trades is low, and prudent risk managers would want to hold such positions. In other words, even if traders are not entirely certain about the outlook, they can establish these defensive positions at a lower cost.

Chain Reaction in the Crypto Market

Capital Flows Accelerate Out

The shift in options market bets has immediately transmitted to the crypto market. According to recent data, digital asset investment products experienced a net outflow of approximately $454 million last week, mainly due to the cooling of expectations for a March rate cut by the Fed. Specifically:

• Bitcoin outflows of about $405 million
• Ethereum outflows of about $116 million
• Projects like Solana, XRP, and Sui saw small inflows

This divergence reflects a reassessment of the risk attributes of different assets. In an environment where rate cut expectations are waning, investors tend to reduce exposure to risk assets.

Why Is the Crypto Market So Sensitive?

The Fed’s interest rate policy directly impacts the valuation of risk assets. When rate cut expectations exist, a low-interest-rate environment favors risk asset inflows. But when this expectation reverses, positions based on the rate cut hypothesis need to be adjusted. Cryptocurrencies like Bitcoin, as high-risk assets, tend to react most sensitively to such macroeconomic expectation changes.

Additional Variables in Concerns Over Fed Independence

It is important to note that this shift in the options market is not solely driven by economic data. According to reports, Fed Chair Powell was recently subpoenaed by the Department of Justice over cost overruns related to the Fed’s headquarters renovation. This event has reignited concerns about the Fed’s independence. ING foreign exchange strategist pointed out that any further signs of attempts to interfere with the Fed’s independence could pose significant downside risks to the dollar.

Uncertainty about the Fed’s independence may increase market volatility, which will also influence the subsequent direction of the crypto market. On one hand, concerns over dollar credibility could support demand for alternative assets like Bitcoin; on the other hand, political uncertainty itself tends to suppress the appeal of risk assets.

What to Watch Next

The market’s expectations for the Fed’s interest rate decisions have already shifted significantly, but traders are still awaiting more confirmation signals. This week, US December CPI data and the Fed’s Beige Book will be key points of observation. If the data further supports the “no rate cut throughout the year” expectation, the options market may continue to increase this bet, potentially exerting greater pressure on the crypto market.

Conversely, any signs of inflation data turning could lead to a reassessment of rate cut expectations. In this highly uncertain environment, crypto market volatility may remain elevated.

Summary

The options market has effectively voted with its actions: the likelihood of a Fed rate cut in 2026 has greatly diminished, and maintaining rates unchanged throughout the year has become the new market consensus. This shift is driven by economic data such as declining unemployment, but also influenced by concerns over the Fed’s independence. The crypto market’s reaction to this expectation reversal is clear — last week, digital asset investment products saw significant outflows, with Bitcoin and Ethereum leading the decline.

For crypto investors, it is crucial to understand that this is not an isolated market event but a reflection of broader macroeconomic changes. The Fed’s policy expectations, economic data, and political uncertainties are intertwined, shaping the short-term direction of the crypto market. Close attention should be paid to upcoming CPI data and the Fed’s Beige Book, as these could provide new guidance for the market.