The Federal Reserve, the United States’ central banking authority, is set to make a significant announcement regarding interest rates this Wednesday. With analysts predicting a reduction of 25 basis points (bps), there is growing consensus that such a move could provide a boost to prices of risk assets, including cryptocurrencies, over the long term.
According to Nic Puckrin, founder of Coin Bureau and a prominent market analyst, cryptocurrency valuations are closely intertwined with liquidity trends. He emphasized that while lower interest rates typically lead to an upward trajectory in asset prices, there is a risk of a temporary downturn in prices immediately following the announcement. “The primary concern is that the rate cut may already be factored into market prices,” Puckrin explained. “The enthusiasm in the market could lead to a ‘sell the news’ scenario, particularly affecting speculative assets like memecoins.”
A chart from Oxford Economics illustrates the current sentiment around Fed policies, signaling a more dovish approach as the potential for multiple rate cuts looms on the horizon. Financial institutions, including Goldman Sachs and Citigroup, have expressed expectations for at least two rate cuts throughout 2025, with Citigroup even forecasting as many as three reductions. In contrast, Oxford Economics’ chief US economist, Ryan Sweet, has labeled those expectations as overly ambitious, despite the Fed’s decision to potentially lower rates sooner than previously anticipated.
A backdrop of weakened labor market statistics supports the Fed’s move. Recent downward revisions that exceed 900,000 jobs for 2025 have raised alarms about the overall economy’s health, prompting the Fed to consider interest rate cuts more seriously. Simultaneously, the unemployment rate, which has been on the rise since last year, adds pressure for a shift in monetary policy.
As all eyes turn to the Federal Reserve’s upcoming decision, market reactions are anticipated. The Chicago Mercantile Exchange (CME) Group reports that only 6.2% of traders believe a 50 bps cut is likely; instead, a more conservative 25 bps reduction is seen as a probable trigger for a temporary spike in risk-on assets. Javier Rodriguez-Alarcon, chief investment officer at XBTO, asserts that such a cut could induce a short-term rally. “A modest 25 bps reduction may ignite a brief upswing in risk assets,” he stated.
However, he also cautioned that a more impactful 50 bps reduction could prompt worries about the broader economic landscape, potentially leading to negative short-term repercussions for the market. “A surprise cut of 50 bps might raise concerns regarding the overall health of the economy and growth prospects,” Rodriguez-Alarcon warned.
Despite these short-term fluctuations, many believe that continued interest rate cuts will eventually lead investors to shift their focus from cash savings to alternative investments in the cryptocurrency space. As liquidity improves with lower interest rates, the long-term outlook for cryptocurrencies could improve significantly.
As the cryptocurrency community waits for the Fed’s announcement, the interplay between interest rates and crypto markets remains a pivotal factor shaping investment strategies and market sentiment. Investors are advised to stay informed and prepared for potential volatility in the days following the announcement.
