If Fed Governor Marian Bowman (or Michelle Bowman) is correct and the Fed cuts rates three times in 2025, it could have several significant effects on the crypto market. Some positive, some negative, depending on how the cuts are made, how they are communicated, and what the global macro picture looks like. Below are key channels and potential effects - useful for thinking about opportunities and risks.
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## Does it signal "three rate cuts".
First, why are three cuts important:
* This means a pivot towards easing from limited monetary policy — looser credit, cheaper borrowing.
* This expresses concerns about the weakening of the labor market, slowing growth, or the risk of falling below the inflation target.
* Markets will price expectations accordingly: not just cuts, but when, how large, and how fast.
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## Potential impacts on crypto
These are the ways these cuts could affect different parts of the crypto ecosystem:
| Impact channel | Potential impact on crypto
| Liquidity and risk appetite | Low interest rate environments increase liquidity. Investors often shift cash or "safe" yielding assets into riskier ones. Crypto is a risk asset, hence demand increases (especially for Bitcoin, large-cap altcoins, DeFi tokens).
| US dollar/real yields | Rate cuts typically weaken the US dollar and lower real yields (nominal rate minus inflation). A weaker dollar could make crypto more attractive internationally. Low or negative real yields make non-productive assets (like many cryptos) less "expensive".
| Cost of borrowing/financing | Low borrowing costs (for both consumers and institutions) can help crypto businesses (e.g., DeFi, margin trades) gain access to cheaper capital. Speculation can leverage this. But it comes with risk: leverage amplifies the downside.
| Competition vs. traditional savings/instruments | Low yields on "safe" instruments (treasuries, savings) diminish their attractiveness, hence crypto may benefit as investors seek higher returns. Conversely, some yield-based crypto products (stablecoins with interest-bearing asset reserves) may see tight margins.
| Volatility and sentiment | Crypto is sensitive to expectations. If cuts are seen as supportive, sentiment may be more positive. But if inflation stops, or economic shocks occur, sentiment can flip. Additionally, sometimes market "prices" are well-cut ahead of time, so actual cuts may trigger "sell the news" reactions.
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## Possible scenarios.
Here are some plausible scenarios, depending on how things unfold, and how crypto could behave in each:
1. Gradually, well-executed cuts, control inflation
* Crypto potential rallies, especially Bitcoin and top altcoins.
* Increased institutional flow, more leverage or margin trading.
* Altcoins, DeFi tokens, NFTs attract more interest.
2. Cuts with risk of economic weakness/recession
* Potentially a mixed reaction: crypto liquidity may rise, but macro concerns (e.g., layoffs, defaults, credit stress) can offset profits.
* Higher likelihood of volatility; risk-off spillovers could target crypto.
3. Suspension of cuts or restoration of inflation
* If inflation becomes sticky, the Fed may pause or reverse. This could shake confidence in crypto, which dislikes uncertainty.
* Additionally, if cuts are less than expected or minimal, crypto gains could be limited or short-lived.
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## Specific risks for crypto
Although easing helps, there are crypto-specific risks to watch:
* Regulatory risk (legislation, taxation, stablecoin oversight) could inversely reduce.
* The returns of stablecoin issuers depend on the rates of their reserve assets. Cuts reduce these returns.
* The market may be overly optimistic. Leverage can lead to sharp corrections.
* "Micro" environment is important: inflation, geopolitical risk, strength of the US dollar, global financial stability.
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## Bottom line
If we see cuts in the three rates.
