Analyzing from multiple dimensions such as liquidity transmission, risk preference, USD exchange rate, institutional behavior, policy expectation games, asset rotation, and long-term institutional support, the impact of the Federal Reserve's interest rate cut on the cryptocurrency market can be broken down into the following core logic.
1. Liquidity Transmission: Lowering interest rates directly reduces the cost of capital, driving funds into the cryptocurrency market.
Federal Reserve interest rate cut → USD borrowing cost decreases → Institutions and individuals are more willing to allocate to high-risk assets (such as BTC, ETH). Historical data shows a significant negative correlation between the real yield of US Treasuries and Bitcoin prices: since 2018, in a low-interest-rate environment, Bitcoin often enters a major uptrend, while the turning point of rising interest rates tends to trigger price corrections. For example, after the Federal Reserve's first interest rate cut of 50 basis points in September 2024, Bitcoin's single-day increase reached 6%, and the total market capitalization of the cryptocurrency market rose by 6% to $2.3 trillion within a week. The current market has priced in a '25 basis point cut in September, with a total of 50 basis points cut within the year'; if realized, it will further strengthen the logic of 'funds chasing high-yield assets.'
II. Increased risk appetite: High-volatility assets become a “water reservoir” for funds
During the rate cut cycle, investor risk appetite rises, making cryptocurrencies more favored as “pioneers of risk assets.” From the perspective of asset performance,
Mainstream coins: BTC often enters a fluctuating upward phase during the rate cut cycle, while ETH, SOL, and others, due to their “higher beta value” (greater elasticity), show more significant increases. For example, after the rate cut in September 2024, ETH's weekly increase reached 16.3%, far exceeding BTC's 9.7%.
Altcoins and Meme coins: Under expanded risk appetite, funds will rotate to smaller market cap, narrative-driven targets (e.g., DOGE, ORDI). On the day of the rate cut in September 2024, the average increase of Meme coins exceeded 10%.
III. USD exchange rate and valuation effect: A weaker dollar boosts the price of cryptocurrencies
Rate cuts typically lead to a weakening of the dollar index (DXY), increasing the attractiveness of cryptocurrencies priced in dollars. For example, after Powell released dovish signals in August 2025, the dollar index fell nearly 1% in a single day, and Bitcoin's increase exceeded 5% on that day. If the Federal Reserve's rate cuts are realized, the dollar could further depreciate, potentially stimulating non-U.S. investors to increase their BTC holdings (to hedge against domestic currency depreciation risks), forming a positive cycle of “weaker dollar → rising coin prices.”
IV. Institutional behavior: From passive observation to active allocation
ETF fund flow: Bitcoin spot ETFs often end their net outflow and turn into net inflow under rate cut expectations. For example, after the rate cut in September 2024, Bitcoin ETFs had four consecutive days of net inflow, restoring confidence from off-market funds. ETH, due to the increase in “Corporate Digital Asset Treasury (DAT)” and active spot ETFs, has become a new favorite among institutions — in August 2025, ETH ETFs had a net inflow of over $4 billion in a single month, driving its price to break previous highs.
Corporate and asset management allocation: Public companies (e.g., MicroStrategy) continuously increase their BTC holdings through the “financing → purchasing” model; by 2025, DAT's cumulative financing exceeds $15 billion, becoming the market's “ballast.” At the same time, if the U.S. pension system allows allocation to crypto assets (e.g., a 1% ratio), it could bring in over $10 billion in incremental funds.
V. Policy expectation speculation: Inflation and employment data become short-term “black swans”
The rhythm of rate cuts is constrained by inflation (CPI, core PCE) and employment data, and the market will “trade expectations” in advance.
Before data is released: If inflation cools down (e.g., CPI lower than expected), rate cut expectations strengthen, and the cryptocurrency market often rises in advance; if inflation exceeds expectations, a short-term pullback may occur (e.g., the annualized core PCE of 2.9% in August 2025 triggered a BTC retracement).
After data is released: If the rate cut is realized, funds flood in quickly; if the rate cut is less than expected (e.g., only 25 basis points), there may be a “buy expectations, sell facts” profit-taking. For example, after the Federal Reserve cut rates by 50 basis points in September 2024, BTC briefly surged to $63,000, but then fluctuated due to recession concerns.
VI. Asset rotation: From BTC to ETH to Altcoin transmission
During the rate cut cycle, funds will rotate along the lines of “market cap from large to small, narrative from certainty to high elasticity”:
Phase one (expectation warming): Funds flock to BTC (hedging + good liquidity), driving it to a historic high;
Phase two (rate cut realized): Funds shift toward ETH (smart contract platform + ETF inflow); in August 2025, ETH's increase reached 18.75%, far exceeding BTC's -6.49%;
Phase three (risk appetite expansion): Funds pour into public chain tokens like SOL and AVAX, or Meme coins and inscription tokens (e.g., SATS), forming an “Altseason.”
VII. Long-term institutional support: Clarification of regulations and increased compliance
The overlapping rate cut cycle with the improvement of the regulatory framework (e.g., the U.S. CLARITY Act, EU MiCA) clears obstacles for institutions to enter the market:
Direct bank holdings: After the U.S. allows banks to hold Bitcoin, traditional financial funds can enter the market through compliant channels.
Sovereign reserve recognition: Countries like Norway and the Czech Republic are considering including BTC in their foreign exchange reserves, strengthening its narrative as “digital gold.”
Corporate compensation adoption: Rate cuts lower borrowing costs, and companies are more willing to pay salaries in cryptocurrencies (e.g., stablecoins to avoid volatility), promoting ecological penetration.
Rate cuts are a “catalyst,” but not a “universal key”
The Federal Reserve's rate cut through liquidity easing → increased risk appetite → dollar depreciation → institutional entry creates a favorable chain for the crypto market, but the strength of the market depends on the balance among the three: “magnitude of rate cuts, economic fundamentals, regulatory attitudes.” In the short term, beware of the volatility of “buy expectations, sell facts,” while in the long term, one can pay attention to BTC's “blue-chip attributes,” ETH's “ecological dividends,” and Altcoin's “rotation opportunities.”
