Fed Rate Cut Impact on Bitcoin & Crypto Markets

The Federal Reserve stands at a critical monetary policy juncture, with traders predicting a near-certain 97.8% chance of a 25-basis point rate cut according to the CME FedWatch Tool. This overwhelming market consensus has been reflected in Bitcoin’s relatively stable trading pattern around $114,850, suggesting investors have largely priced in the anticipated move. The prediction market Myriad, owned by Decrypt parent company Dastan, shows a slightly more conservative 90% probability, highlighting the nuanced expectations across different market segments.

Beyond the immediate rate decision, attention is focused on whether the Fed will signal an end to quantitative tightening (QT) – the process of reducing money supply by letting bond holdings shrink. Dr. Andre Dragosh, head of research in Europe for Bitwise, emphasized that “the end of QT would certainly send a clear signal for higher inflation tolerations—closer to 3% over the medium term.” This potential policy shift has gained credibility with Bank of America and JP Morgan already signaling expectations for the Fed to end QT soon, adding weight to market anticipation.

Current crypto market dynamics reveal a mixed picture. Bitcoin has remained relatively flat, trading around $114,850 with a minimal 0.1% decline over the past 24 hours, while Ethereum experienced a slight 2.2% drop but maintained strength above $4,100, representing a 2.7% weekly gain. According to Dr. Dragosh, this stability reflects how “the mere announcements of easier monetary policy such as QE1, QE2, Operation Twist, etc. has already led to significant increases in inflation expectations in the past,” as documented in Bitwise’s latest Crypto Market Compass report.

Historical patterns suggest that easier monetary policy has consistently supported crypto and other risk-on assets. Dr. Dragosh noted that “rate cuts add fuel to the already accelerating liquidity growth in the U.S. and globally which is why we are most likely looking at an extension of the current bull market well into 2026 and no imminent cycle top.” The current scenario draws parallels to previous monetary easing cycles, where increased liquidity typically flowed into alternative assets like Bitcoin as investors sought protection against potential currency devaluation.

Jonathan Rose, CEO of BlockTrust IRA, cautions that current trader positioning should differ significantly from September’s approach, noting that “the market might have overestimated how big or when the policy easing would happen, which could have led to some naive or crowded positioning.” He advises traders to “go against the crowd, expecting a reversal if the market initially reacts positively to the rumor but then sells the underlying fact,” highlighting the importance of contrarian thinking in crowded trade scenarios.

Rose identifies the $111,000 to $115,000 range as critical for Bitcoin traders, stating that “this area could either be a starting point or a potential point of failure, depending on how things turn out.” He emphasizes that “since there’s a lot of leverage involved, risk management is super important” and warns that positions should be ready for quick closure “if the Federal Reserve’s message changes from what we thought.” This cautious approach reflects the high-stakes environment surrounding Fed policy decisions.

The monetary policy landscape intersects with geopolitical developments, particularly the upcoming meeting between U.S. President Donald Trump and Chinese President Xi Jinping on Thursday. Dr. Dragosh suggests that “a relaxation of the U.S.-China trade spat would even strengthen this view and the sell-off in gold actually tells us that a risk-on scenario which supports Bitcoin and cryptoassets could, in fact, be on the horizon.” This connection between trade relations and risk asset performance adds another layer to the complex crypto market calculus.

Looking beyond the immediate rate decision, futures market data indicates an 89% probability of another Fed cut in December, suggesting this week’s move may be part of a broader easing cycle. The combination of potential QT termination and sequential rate cuts could create sustained momentum for crypto markets. However, as both Dr. Dragosh and Rose emphasize, the interplay between monetary policy, geopolitical developments, and market positioning requires careful navigation, with the $111,000-$115,000 Bitcoin range serving as a crucial technical and psychological battleground in the sessions ahead.