Monday delivered a much-needed relief rally for crypto markets, with major digital assets climbing alongside traditional equities as traders ramped up expectations for a Federal Reserve rate cut in December. But before you start planning your Lambo colors, at least one prominent analyst thinks the downtrend isn't quite finished yet.

Bitcoin (BTC) climbed 1.54% to $87,998.49 by 8:25 p.m. ET, briefly pushing past $89,000 before settling back into the high $88,000s overnight. Trading volume jumped 19% over the previous 24 hours, suggesting renewed interest after weeks of crypto market malaise.

Ethereum (ETH) put up even stronger numbers, rallying 5.60% to $2,941.69, though it hit a wall around the psychologically important $3,000 level. Trading volume for the second-largest cryptocurrency exploded nearly 50% compared to the day before.

The gains extended across the crypto spectrum. XRP (XRP) led major coins with a 10.28% surge to $2.25, while Solana (SOL) added 5.94% to reach $138.51. Even meme favorite Dogecoin (DOGE) joined the party, climbing 4.98% to $0.1519.

Strategy Inc. (MSTR), the Bitcoin holding company formerly known as MicroStrategy, rose over 5% during regular trading hours, tracking the crypto rally.

Short Sellers Feel the Pain

The sharp upward move caught bearish traders off guard. According to Coinglass data, cryptocurrency liquidations reached $365 million in the last 24 hours, with short position traders accounting for roughly $255 million of those losses. That's what happens when you bet against a market that decides Monday is rally day.

Bitcoin's open interest edged up a modest 0.55% over 24 hours. More tellingly, nearly 70% of Binance traders holding open BTC positions were positioned long, according to the exchange's Long/Short Ratio. Despite the bounce, though, the Crypto Fear & Greed Index showed that "Extreme Fear" remained the dominant market sentiment.

Some smaller coins posted even more dramatic gains. Rain skyrocketed 118.71% to $0.007934, while Fartcoin (yes, really) added 26.22% to $0.2806. Helium climbed 22.21% to $2.26. The global cryptocurrency market capitalization stood at $3.03 trillion after increasing 2.56% in the last 24 hours.

Fed Officials Give Markets What They Want

The crypto rally mirrored moves in traditional markets, where stocks kicked off the holiday-shortened week with solid gains. The Dow Jones Industrial Average rose 202.86 points, or 0.44%, to close at 46,448.27. The S&P 500 climbed 1.55% to 6,705.12, while the tech-heavy Nasdaq Composite surged 2.69% to finish at 22,872.01.

The catalyst? Dovish commentary from Federal Reserve officials that ramped up expectations for a December rate cut. Fed Governor Christopher Waller became the latest central banker to signal support for cutting rates next month, echoing similar remarks from New York Fed President John Williams last week.

Traders responded by pricing in an 80% probability that the Fed will slash rates by 25 basis points in December, up from 71% just a day earlier, according to the CME FedWatch tool. Lower interest rates tend to benefit risk assets like cryptocurrencies by making yield-generating alternatives less attractive.

Is Bitcoin Building a Bottom?

Blockchain analytics firm CryptoQuant noted something interesting happening beneath the surface of Monday's rally. The firm identified the "strongest" 30-day drop in Bitcoin's open interest during the current market cycle, with the last comparable decline occurring during the 2022 bear market.

"Historically, these cleansing phases have often been essential to forming a solid bottom and setting the stage for a renewed bullish trend," CryptoQuant observed. The idea is that excessive leverage and weak hands need to be washed out before a sustainable rally can take hold.

But the Downtrend May Not Be Done

Not everyone is ready to declare the bear phase over. Widely followed cryptocurrency analyst and trader Michaël van de Poppe cautioned that Bitcoin remains in a downtrend despite Monday's recovery, with $91,000 representing the first major resistance level.

"I would assume we're going to see some consolidation there, and probably test $85,000-$86,000 before we'll continue to go up," van de Poppe projected.

In other words, the analyst expects Bitcoin to struggle around current levels, potentially dipping back toward the mid-$80,000s before establishing a firmer foundation for the next leg higher. It's a reminder that one good day doesn't make a trend reversal, especially after the kind of selling pressure crypto markets have absorbed in recent weeks.

For now, though, traders seem content to enjoy the bounce and hope that dovish Fed officials keep talking.