Rate Cut Playbook: The Path Forward for Bitcoin, Stocks, and Gold

"Take a break and wait until after the Fed's decision."

This cautious sentiment has dominated investment discussions in recent days.

On September 17 at 2 PM (ET), the Federal Reserve will announce its latest interest rate decision. This marks the fifth policy meeting since the rate-cutting cycle began last September. Markets widely expect another 25-basis-point cut, which would lower rates from 4.5% to 4.25%.

The contrast is striking: a year ago, investors were anticipating the start of rate cuts. Today, we're already halfway through the cycle.

Investors are watching closely because history shows a clear pattern: when the Fed enters an easing cycle, multiple asset classes typically rally strongly.

The question now is which assets will benefit most from this expected cut.

How will Bitcoin respond to easier monetary policy? Will stocks continue their upward momentum? Can gold extend its recent gains?

Historical data from three decades of Fed easing cycles may provide valuable insights into what comes next.

What Kind of Rate-Cutting Cycle Are We Entering?

Federal Reserve rate cuts are never simple moves.

History shows they can play two very different roles: sometimes they act as economic stimulants that send markets soaring, other times they signal trouble ahead, serving as the calm before a financial storm where assets don't necessarily rise.

The 1995 Preventive Cut

Fed Chair Alan Greenspan faced what he called a "happy dilemma": the economy was growing strongly, but warning signs of overheating were appearing. His solution was a modest "preventive cut" - reducing rates from 6% to 5.25%, a total of just 75 basis points.

The result?

U.S. stocks entered the most spectacular bull run of the internet era. The Nasdaq soared fivefold over the next five years, making this the textbook example of a successful soft landing.

The 2007 Crisis-Driven Cuts

As chronicled in The Big Short, the subprime mortgage crisis was already brewing, though few grasped its true scale. When the Fed began cutting from 5.25% in September 2007, markets were still euphoric, and the S&P 500 was hitting all-time highs.

What happened later is well known to everyone. Lehman Brothers collapsed, a global financial tsunami hit, and the Fed was forced to slash rates from 5.25% to 0.25% within 15 months, a cut of 500 basis points. This rescue effort, coming too late, still couldn't prevent the economy from falling into the most severe recession since the Great Depression.

The 2020 Panic-Driven Cuts

The unforeseen "black swan" of COVID-19 struck, prompting the Federal Reserve to execute two emergency rate cuts on March 3 and March 15. Within just ten days, the benchmark rate plummeted from 1.75% to 0.25%. Simultaneously, the Fed launched "unlimited quantitative easing," expanding its balance sheet from $4 trillion to $9 trillion.

This unprecedented flood of liquidity created one of the most surreal episodes in financial history: while the real economy ground to a halt, financial assets went on a rampage. Bitcoin epitomized this disconnect, surging from $3,800 in March 2020 to $69,000 in November 2021, a staggering 17-fold gain.

Three Historical Patterns

Looking back at these three types of rate cuts, clear patterns emerge. Though the processes differed dramatically, the outcomes showed striking similarities.

So which playbook will 2025 follow?

From the data, the current situation looks most like the preventive cuts of 1995. Key indicators appear healthy: unemployment sits at just 4.1%, GDP continues expanding with no recession in sight, and inflation has retreated from its 9% peak in 2022 to around 3%.

Yet a few troubling details stand out.

This rate cut arrives while equities are already at historic highs. The S&P 500 has surged more than 20% this year. The historical parallel is concerning: in 1995, the Fed cut rates when markets were recovering from a low point, but in 2007, they cut at market peaks only to watch stocks collapse shortly after.

U.S. government debt now equals 123% of GDP, far above the 64% level in 2007. This leaves significantly less room for fiscal stimulus if things go wrong.

Regardless of which historical pattern this cycle follows, one thing remains certain: the liquidity floodgates are about to open.

The Rate-Cut Script for Crypto

As the Federal Reserve prepares to turn the liquidity taps back on, what might happen in the crypto market?

To answer this question, we need to examine what occurred during the last rate-cutting cycle.

Between 2019 and 2020, when a crypto market worth just $200 billion suddenly faced trillions of new liquidity, the path to asset appreciation was far from straightforward.

2019 Rate-Cut Cycle: All Bark, No Bite

On July 31, 2019, the Fed cut rates for the first time in a decade. For the crypto market, this should have been a massive bullish catalyst.

Interestingly, Bitcoin seemed to anticipate the move. Starting in late June, it began climbing from $9,000 and by mid-July had already touched $13,000. The market was clearly betting on a new bull run once the cut arrived.

Yet when the cut actually materialized, price action defied all expectations. On July 31, as the rate decision was announced, Bitcoin hovered near $12,000, then slipped lower instead of rallying. By August it had fallen below $10,000, and by December it was back near $7,000.

Looking back, several factors explain this counterintuitive reaction:

• Limited Liquidity Impact: The 75-basis-point reduction was relatively modest, limiting the actual amount of new liquidity unleashed into the system.

• Market Psychology: The crypto market was only just emerging from the brutal 2018 bear market, and investor confidence remained fragile.

• Institutional Absence: Most importantly, traditional institutions were still sitting on the sidelines. The capital from that easing round flowed mainly into equities, with the S&P 500 rising nearly 10% over the same period while crypto languished.

2020 Rate-Cut Cycle: The Roller Coaster After the March 12 Crash

In early March, markets already sensed trouble brewing. On March 3, the Federal Reserve made an emergency 50-basis-point cut. Instead of rising, Bitcoin fell from $8,800 to $8,400.

The logic was straightforward: an emergency cut signaled serious economic trouble, so investors chose to exit first and ask questions later.

The following week brought crypto's most traumatic moment. On March 12, Bitcoin plunged from $8,000 to $3,800 in a single day, a devastating 50% drop within 24 hours. Ethereum fared even worse, collapsing from $240 to $90.

The infamous March 12, 2020 crash became a collective trauma seared into crypto memory. This meltdown was actually part of a broader global liquidity crisis. As pandemic panic gripped markets, nearly every asset was being dumped indiscriminately. Stock markets hit circuit breakers, gold fell, and even supposedly safe U.S. Treasuries were sold off. Investors were liquidating everything for cash, and "digital gold" Bitcoin was no exception.

What made the carnage worse was the extreme leverage saturating the crypto market.

On derivatives exchanges like BitMEX, massive long positions with 100x leverage were getting liquidated en masse. A cascade of forced liquidations followed like an avalanche, with each liquidation triggering the next. Within just a few hours, more than $3 billion in positions were wiped out across the market.

And just when everyone thought Bitcoin was heading to zero, the turning point arrived.

On March 15, the Federal Reserve cut rates to 0–0.25% and launched a $700 billion quantitative easing (QE) program. On March 23, it went nuclear with "unlimited QE." After bottoming at $3,800, Bitcoin began an epic rebound that would rewrite financial history:

Bitcoin's Meteoric Rise

• March 13, 2020: $3,800 (cycle low)

• May 2020: $10,000 (up 160% in two months)

• October 2020: $13,000 (up 240% in seven months)

• December 2020: $29,000 (up 660% in nine months)

• April 2021: $64,000 (up 1,580% in 13 months)

• November 2021: $69,000 (up 1,715% in 20 months)

Bitcoin wasn't alone. The entire crypto market entered a euphoric frenzy. Ethereum rocketed from $90 to $4,800, a staggering 53-fold surge. Many DeFi tokens rose by hundreds of times. Overall market capitalization expanded from $150 billion in March 2020 to $3 trillion by November 2021.

Why did markets react so differently in 2019 versus 2020, despite both being rate-cutting periods?

The answer is simple: the scale of liquidity depends entirely on the magnitude of easing.

Even if only 1% of that flowed into crypto, it meant $50 billion, equal to one-third of the entire crypto market cap at the start of 2020.

There was also a dramatic sentiment reversal. In March, investors sold everything for cash out of sheer panic. By year's end, they were borrowing money to buy assets. This extreme swing from fear to greed amplified volatility on both sides.

Most crucially, institutions finally entered the arena.

MicroStrategy began buying Bitcoin in August 2020, eventually accumulating over 100,000 coins. Tesla announced a $1.5 billion purchase in February 2021. Grayscale's Bitcoin Trust (GBTC) holdings surged from 200,000 BTC at the start of 2020 to 650,000 by year's end.

These institutional purchases brought not just real capital, but powerful validation that legitimized crypto as an asset class.

2025: History Repeating?

In terms of scale, markets expect a 25-basis-point cut on September 18, but this is likely just the opening act. Based on current economic data, the entire easing cycle over the next 12–18 months could deliver a cumulative reduction of 100–150 basis points, ultimately bringing rates down to around 3.0–3.5%.

This puts the current cycle somewhere between the modest 75-basis-point cuts of 2019 and the dramatic plunge to zero in 2020.

From a positioning perspective, Bitcoin is already trading near its historical high of $115,000. Unlike March 2020, there's no vast upside left to reclaim from previous crashes. Yet the situation also differs from 2019, when the market had just crawled out of a bear cycle. Today, confidence remains relatively strong.

From an institutional participation angle, Bitcoin ETF approval has been a game-changer. In 2020, institutions were merely testing the waters with experimental allocations. Now, standardized investment vehicles provide clear entry points. However, institutions have also grown more sophisticated and are unlikely to chase prices with the same FOMO frenzy that characterized 2020–2021.

Perhaps 2024 to 2025 will produce an entirely different scenario, neither the muted response of 2019 nor the euphoric frenzy of 2020, but something closer to "rational prosperity." Bitcoin may not deliver another 17-fold surge, but steady gains as liquidity gates open seems a more convincing story.

The key will also depend on how other assets perform. If stocks and gold rally simultaneously, capital will inevitably get spread thin across multiple opportunities.

Traditional Assets During Easing Cycles

Rate-cutting cycles don't just affect crypto; they reshape the entire investment landscape.

For crypto investors, understanding these historical patterns is crucial, since traditional assets serve as both a source of capital and direct competition for investor dollars.

U.S. Equities: Rate Cuts Don't Always Mean Bull Markets

According to research from BMO, detailed analysis of the S&P 500's performance across more than four decades of Fed easing cycles reveals a nuanced picture:

History shows that the S&P 500 typically delivers positive returns within 12 to 24 months after the Fed's first rate cut or the start of an easing cycle.

Even more telling, when the two major "black swan" events, namely the 2001 tech bubble burst and the 2007 financial crisis, are excluded from the data, average returns both before and after rate cuts become significantly higher.

This precisely highlights the critical issue: the S&P 500's average return is merely a reference point. The actual performance of equities after a rate cut depends entirely on why the Fed is cutting. If it's a preventive move like 1995, markets tend to celebrate. If it's a crisis-driven response like the 2007 financial meltdown, equities usually crash first and recover only later, which leads to a long and painful process.

Looking deeper at individual stocks and sector performance, research from Ned Davis Research reveals clear patterns in how different industries respond during rate-cutting cycles:

1. When the economy remained relatively healthy and the Fed delivered only one or two cuts, cyclical sectors like financials and industrials outperformed the broader market.

2. But during weaker economic periods requiring four or more significant cuts, investors fled to safety. Healthcare and consumer staples posted the highest median returns, at 20.3% and 19.9% respectively. Meanwhile technology, often the most anticipated sector, only delivered a disappointing 1.6%.

Research from Nomura reveals an important pattern: in the three months following a 50-basis-point rate cut, the S&P 500 typically showed little change, while the small-cap Russell 2000 Index rose an average of 5.6%.

This makes perfect sense. Smaller companies are far more interest-rate sensitive as they face higher borrowing costs, so rate cuts deliver greater marginal relief. Small-cap stocks also serve as a "risk appetite" gauge. When they start outperforming large caps, it signals growing optimism in market sentiment.

Since the September 2024 rate cut,

• S&P 500: from 5,600 points to 6,500 points (+16%)

• Nasdaq: from 17,000 points to 22,000 points (+30%)

These numbers are striking when compared to historical precedent. The S&P 500's current 16% gain has already exceeded the post-cut average of 11% across all previous easing cycles. Even more notable: the Nasdaq's surge is nearly double the S&P 500's performance.

Bond Market: Most Predictable, Least Exciting

Bonds are the most "boring" yet reliable asset during rate-cut cycles. When the Federal Reserve cuts rates, bond yields fall and bond prices rise.

According to analysis from Bondsavvy, the decline in 10-year U.S. Treasury yields has followed a remarkably consistent pattern across different easing cycles:

• 2001–2003: Down 129 basis points

• 2007–2008: Down 170 basis points

• 2019–2020: Down 261 basis points (pandemic anomaly)

The outsized drop during 2019–2020 had a clear explanation: the Fed didn't just cut rates to zero, it also launched "unlimited QE," directly purchasing Treasuries to artificially suppress yields. This level of unconventional intervention doesn't occur during normal easing cycles.

Progress in the Current Cycle

Based on the historical precedents of 2001 and 2007, the total decline in 10-year U.S. Treasury yields during a complete easing cycle typically ranges from 130–170 basis points. Currently, yields have already fallen 94 basis points, leaving an estimated 35–75 basis points of additional room to fall.

In practical terms, if the 10-year yield drops another 50 basis points to around 3.5%, investors holding 10-year Treasuries could capture roughly 5% in capital appreciation. While attractive for traditional bond investors, this return may seem modest to crypto participants accustomed to double or triple-digit gains.

For risk-asset investors, bonds function more as a barometer than an investment target. Here's the key signal to watch: if Treasury yields are plunging while corporate bond yields remain stable or even rise, it indicates a dangerous "flight to safety" moment.

During such periods, investors are abandoning risk assets across the board, and Bitcoin is typically among the first to be sold off.

Gold: The Steady Winner in Easing Cycles

Gold may be the asset that "understands" the Federal Reserve best. Over the past decades, nearly every easing cycle has delivered solid gold gains with remarkable consistency.

According to research from Auronum, gold's performance across the past three rate-cutting cycles tells a compelling story:

• 2001 cycle: Up 31% within 24 months

• 2007 cycle: Up 39% within 24 months

• 2019 cycle: Up 26% within 24 months

On average, gold rose about 32% in the two years following rate cuts. While less dramatic than Bitcoin's explosive moves, gold offers something crypto can't: perfect consistency. Three cycles, three positive outcomes, zero exceptions.

This Cycle: Breaking Its Own Records

Over the past year, gold has surged 41%, already exceeding the performance of any previous easing cycle. What's driving this exceptional strength?

Central Bank Accumulation. In 2024, global central banks purchased over 1,000 tons of gold, a record high. Major economies like China, Russia, and India have aggressively increased holdings, reflecting the growing "de-dollarization" trend as countries seek alternatives to dollar reserves.

Geopolitical Premium. The Ukraine conflict and Middle East tensions have created persistent global instability, adding an escalating "war premium" to gold prices that shows no signs of abating.

Currency Debasement Fears. U.S. government debt now exceeds 120% of GDP, with annual fiscal deficits approaching $2 trillion. The inevitable question: where will that money come from? Money printing. Gold remains the traditional hedge against currency debasement, and when investors worry about the dollar's purchasing power, they buy gold. Bitcoin shares this logic, but markets still trust gold's 5,000-year track record more.

Performance over the past year:

• Gold: +41% ($2,580 → $3,640)

• Bitcoin: +92% ($60,000 → $115,000)

Bitcoin appears to be the clear winner, but there's a crucial difference in market capitalization. Gold's roughly $15 trillion market versus Bitcoin's $2.3 trillion means gold's 41% rally actually absorbed far more capital than Bitcoin's seemingly superior gains.

Historically, when gold's gains exceed 35% during an easing cycle, it typically enters a consolidation phase. Even bullish investors eventually need to lock in profits after such substantial rallies.

Final thoughts

September 2025 finds us at a fascinating crossroads.

The rate-cut cycle has been underway for a year, moving at a moderate pace. Bitcoin trades at $115,000, sitting in the middle ground between previous lows and potential highs. Market sentiment is greedy but not euphoric, cautious but not panicked. This balanced state is the hardest to read and demands the most patience.

History suggests that the latter half of easing cycles often delivers the most excitement. After the final two cuts in 1995, U.S. equities launched into the legendary internet bull market. In 2020, Bitcoin's true takeoff came only six months after the Fed slashed rates.

If history rhymes, the next 6 to 12 months could prove pivotal.

Yet history also teaches us that surprises are inevitable. Perhaps this time the surprise will be an AI-driven productivity boom that eliminates inflation and allows unlimited Fed cuts. Or perhaps escalating geopolitical conflict will change everything. Or another financial crisis entirely.

The only constant is change.

The dollar-based monetary order is shifting. The ways we store value are evolving. The speed of wealth transfer keeps accelerating.

Crypto represents more than just an investment class. It embodies this era of transformation. So instead of asking whether Bitcoin will reach $150,000 or $200,000, ask yourself:

Am I prepared for this change?

If the answer is yes, congratulations. The rate-cut cycle is only the beginning. The real fun still lies ahead.

Connect with us:

• Telegram: t.me/blockflownews

• Twitter: x.com/BlockFlow_News