Key Takeaways:
The Federal Reserve is expected to cut rates on Wednesday, a move historically bullish for Bitcoin and altcoins.
Political turmoil surrounds the Fed as the Trump administration attempts to oust governor Lisa Cook while appointing pro-crypto economist Stephen Miran.
Analysts see liquidity unlocking from money market funds and mortgage debt, with ETH, SOL, and DeFi tokens most sensitive to rate cuts.
Fed Rate Cut Expected as Political Drama Unfolds
The U.S. Federal Reserve is widely expected to announce a 25 basis point rate cut on Wednesday, resuming its easing cycle for the first time in 2025. Lower interest rates traditionally reduce the appeal of bonds and savings products, boosting flows into risk-on assets such as Bitcoin and altcoins.
But the decision comes against the backdrop of a political battle over Fed independence. President Donald Trump’s administration recently moved to oust Fed governor Lisa Cook over alleged mortgage fraud, claims she denies as “politically motivated.” A Washington appeals court has temporarily blocked her removal, allowing her to remain while the case proceeds.
Meanwhile, the Senate confirmed White House adviser Stephen Miran to the Fed’s board of governors. Miran, an economist with pro-crypto leanings, could tilt the central bank’s agenda closer to the administration’s goals. Critics argue this risks undermining Fed independence.
What a Politicized Fed Means for Crypto
Analysts warn that a less independent Fed could make monetary policy more volatile and politically driven.
Aaron Brogan, founder of Brogan Law, told Cointelegraph:
“The Fed has great authority over banks, and ultimately, banks are quasi-regulators of the crypto industry by determining who can and cannot access financial services.”
He added that while Fed independence traditionally ensures consistency, political influence may make crypto-related policy “more changeable and susceptible to public whims.”
Crypto Markets Position for Rate Cuts
Despite the turmoil, traders are preparing for fresh liquidity injections if the Fed resumes cutting rates.
Kevin Rusher, founder of real-world asset lending platform RAAC, said the move could unlock $7.2 trillion in money market funds and free up capital tied in mortgage debt. Much of this liquidity could flow into DeFi protocols and tokenized real-world assets (RWAs).
Alice Liu, research lead at CoinMarketCap, noted that “high-beta layer-1s” such as Ethereum (ETH $4,525) and Solana (SOL $235.23) are particularly sensitive to interest rate changes, trading much like growth tech stocks, according to Cointelegraph.
“DeFi tokens are relatively more attractive when interest rates fall, boosting tokens tied to lending and DEX activity,” Liu added. “Bitcoin remains the ‘quality crypto’ — less rate-sensitive but still reactive to big policy surprises.”
Gold, Bitcoin Already “Pricing In” Lower Rates
Macro analysts suggest both gold and Bitcoin are front-running the Fed’s decision, rallying in anticipation of looser financial conditions.
The Kobeissi Letter highlighted that when the Fed cuts rates within 2% of all-time highs, the S&P 500 has finished higher one year later in 20 out of 20 instances.
“Gold and Bitcoin have known this,” it wrote. “The straight-line higher price action we have seen in these asset classes is pricing in what’s coming.”
