Why Bitcoin May Be Underpricing January Rate Cut Odds

Bitcoin’s flat price action and subdued volatility suggest investors may be overlooking a shift in Federal Reserve expectations, potentially leaving the token mispriced ahead of key inflation data, analysts said.

The core of the argument is that markets are too complacent. 

“Risk into tomorrow’s CPI print feels a bit asymmetric to me, given the market expects a ~60% chance of no more cuts under Powell,” Quinn Thompson, CIO of Lekker Capital, tweeted on Monday.

He argues that the roughly 75% odds of just one cut before the midterms also “seem too low,” particularly with Trump’s new Federal Reserve appointee, Stephen Miran, positioned to influence policy.

Bitcoin is down 1.2% over 24 hours and is trading at $91,150 according to CoinGecko data. The top crypto has remained stuck in the $90,000 to $94,000 range for nearly two months. 

It comes as Bitcoin’s Implied Volatility Index—a gauge of expected price swings—hovers near 43, at the extreme lows of its multi-year range, signaling that traders expect no major catalyst and that the market reflects a similar mispricing to rate-cut odds.

“Markets are underpricing the odds of a rate cut,” Sean Dawson, head of research at Derive, told Decrypt, echoing the underpricing thesis. The CME FedWatch tool puts the odds of a January 28 cut at just 5%. “In my head, the odds are at least 10%,” Dawson said.

He justifies this with conflicting macroeconomic data: the U.S. added only 50,000 jobs in December, the worst annual growth since 2003, while core inflation remains stuck near 2.6%, above the Fed’s target. These figures, distorted by tariffs and last year’s government shutdown, make today’s CPI a key catalyst.

That argument is amplified by unprecedented political pressure, particularly by the Department of Justice’s criminal lawsuit against Federal Reserve Chair Jerome Powell. 

“Charges against Powell show that Trump is willing to go after any Fed member who does not agree with his rate cut views,” Derek Lim, head of research at crypto market-making firm Caladan, told Decrypt. “The government attempting to control the Fed is something that is unprecedented.”

The setup favors a bigger move in one direction. If inflation keeps the Federal Reserve on a hawkish path, Bitcoin is likely to trade sideways. But a softer reading could catch markets off guard, pushing prices sharply higher, analysts said.