The Fed delivered the quarter-point rate cut the market had demanded, and Ethereum is reacting exactly as the “smart money” predicted.
While Bitcoin effectively ignored the news at around $92,000, Ethereum maintained its pre-meeting gains above $3,300, confirming the sharp swings seen in the 24 hours leading up to the decision.
This reduction itself was merely a formality, as the price had already been set. However, the implementation of this policy confirms that the easing cycle remains intact despite the persistence of inflation and removes the last barrier of concern heading into 2025.
Therefore, during this period immediately following the decision, Ethereum has served as the market’s preferred long-term asset, leveraging its sensitivity to liquidity conditions to outperform the broader crypto beta.
Spot-driven revaluation of ETH
The quality of this rally distinguishes it from the leverage-driven breakout seen in early 2025. Market structure data shows this is a re-pricing of assets rather than a speculative squeeze.
CryptoQuant says funding rates on major derivatives exchanges remain subdued despite the surge in prices. This divergence is critical because the rally earlier this year often coincided with rising funding costs, a sign of exhaustion from overlong positions.
However, the lack of recent ‘bubbles’ suggests that bids are coming from spot buyers and institutional desks absorbing supply.
In fact, this is consistent with on-chain signals leading up to the meeting.
Data from Santiment revealed that large holders (known as whales and sharks) accumulated nearly 1 million ETH (worth $3.1 billion) in the three weeks leading up to this decision. These organizations were oriented towards a specific outcome: a Fed that prioritizes stable growth over aggressive deflation.
Powell’s realization of the put gave the green light for deployment to Dry Powder, a $66.5 billion stablecoin currently held on exchanges.
In previous cycles, such large overhangs in idle capital often encouraged sustained turnover once macro uncertainties were resolved.
profit paradox
However, this bullish rotation forces institutional investors to confront a clear contradiction in Ethereum’s fundamentals: the collapse of layer 1 returns.
After the Dencun upgrade, the economics of Ethereum mainnet changed fundamentally. Layer 2 solutions like Coinbase-backed Base currently process 94% of Ethereum network transactions, but this activity no longer incurs hefty ETH fees.
This has pushed the blockchain network’s mainnet fees below 300 ETH per day on a 90-day moving average, the lowest revenue level since 2017, according to data from Glassnode.
Strictly speaking, this undermines the “ultra-sound money” narrative. Without high issuance fees to offset it, ETH is about to become inflated again.
However, the market reaction to the Fed’s rate cut suggests that investors are ignoring the high-yield “bond” narrative and are valuing Ethereum as a platform for growth stocks.
We believe the explosion in L2 activity will make the network cheaper and more usable for real-world tokenization and stablecoin usage, creating a long-term moat that is even stickier than the high gas fees of the past.
In a low interest rate environment, the market is willing to pay a premium for the growth of this ecosystem, even if direct rental income is temporarily lower.
This structural confidence is reflected in corporate finances. Tom Lee’s Bitmine Immersion Technologies, which acts as a proxy for institutional demand, added about 138,452 ETH to its balance sheet last week.
With total holdings of 3.86 million ETH worth $12 billion, this accumulation represents a mechanical removal of supply to compensate for the $177 million in daily inflows seen by the Spot Ethereum ETF on December 9th.
Predictions for 2026
Meanwhile, the most important takeaway from today’s meeting is not the rate cut itself, but the 2026 “dot plot.” The Fed has laid out a path for gradual easing, and expects interest rates to settle at significantly lower levels over the next 18 months.
For the cryptocurrency market, pace is just as important as direction. A drastic reduction in interest rates caused by panic signals an economic recession, a scenario in which all risk assets, including cryptocurrencies, are usually sold off.
On the contrary, the “moderate” path outlined today suggests that the economy is resilient enough to cope with some downturn. This is the “Goldilocks” scenario for Ethereum.
Compression of real yields reduces the discount rate for future technology growth. Ethereum has historically performed well in this particular environment due to its correlation with technical beta and time period.
The ETH/BTC ratio has risen to 0.036, reacting to this change in cost of capital expectations. Although this ratio remains at historically low levels, the breakout above the trend line suggests that the “underperforming trades” may have come to an end.
judgment
Jerome Powell has effectively provided the market with a roadmap to 2026 that prioritizes risk-taking with established technology protocols.
The Fed’s willingness to tolerate “some upside” in inflation to ensure a soft landing will make holding cash less attractive and encourage moves further off the risk curve.
Ethereum enters this post-FOMC period with a rare combination of tailwinds: a spot-driven market structure, high institutional accumulation, and a macro environment that lowers the cost of capital for growth assets.
While the collapse in L1 earnings presents long-term economic challenges, the immediate market verdict is clear. This means that rotation has begun and “soft landing” transactions are being expressed in ETH.
