Crypto Reacts to Fed’s 25bps Rate Cut: Could 2025 Easing Trigger the Next Bull Run?

On September 17 at 18:00 UTC, the Federal Reserve announced a 25 basis point rate cut, lowering the federal funds rate to 4.25%. This matched the market consensus forecast of 4.25%, down from the previous 4.50%.

Markets had largely anticipated the move, with prediction markets on Polymarket showing a 91% probability for a 25bps cut and JPMorgan publishing a similar forecast last week.

The Fed justified the cut by pointing to softening job growth, upward pressure on unemployment, and moderation in inflation, conditions that suggested weakening labor market conditions posed a greater risk than overheating.

The rate-cut cycle has only just begun, and hundreds of billions or even trillions of dollars are expected to flow into the markets.

Identifying the 2025 Rate-Cut Type and Market Implications

This marks the fifth policy meeting since the Fed resumed easing in September 2024. To understand potential market reactions, it is useful to compare the 2025 cycle with historical rate-cut patterns.

Historically, rate cuts have followed three main scenarios:

1. Preventive Rate Cuts (1995, Early Signs of Overheating)

   1. Implemented when the economy is growing but shows early signs of overheating.

   2. Typically involves modest cuts to guide a soft landing.

   3. Assets such as equities gradually rise, with technology and cyclical sectors benefiting.

2. Rescue-Driven Rate Cuts (2007, Subprime Mortgage Crisis)

   1. Occur when financial stress or crises emerge, often too late to prevent severe downturns.

   2. Cuts are larger and follow a hard-landing trajectory.

   3. Equities may fall initially before rebounding, while safe-haven assets gain.

3. Panic-Induced Rate Cuts (2020, COVID-19 Pandemic)

   1. Triggered by unforeseen shocks or crises, requiring emergency measures.

   2. Involves rapid and deep cuts, often to near-zero rates, accompanied by large-scale liquidity injections.

   3. Assets experience extreme volatility: initial collapses can be followed by dramatic recoveries, especially in high-risk sectors.

The 2025 cycle, with U.S. unemployment at 4.3% and GDP growth still positive, aligns most closely with the preventive scenario of 1995.

The economy is not in crisis, suggesting moderate rate cuts aimed at stimulating demand to counteract labor market weakness and tariff-induced inflationary pressures, thereby easing upward price pressures and supporting sustained, stable economic growth.

However, elevated equity indices and high sovereign debt ratios introduce some uncertainty, meaning markets may not respond as smoothly as in past preventive cycles. This positioning provides a framework for projecting how both traditional and crypto assets could react in the coming months.

Reviewing Rate-Cut Cycle and Crypto Market Impact

Although the 2025 Fed rate cut resembles the preventive cycle of 1995 in its economic context, crypto markets were far less mature at that time, making historical parallels challenging.

To understand potential reactions, it is useful to review the 2019 and 2020 rate-cut cycles, as well as the early indications from 2025, to compare how crypto assets respond to different easing scenarios.

These historical episodes provide insights into market dynamics, but their applicability is limited because the current crypto market is larger, more liquid, and more institutionally engaged.

2019 Rate-Cut Cycle: Gradual Easing

Bitcoin

• BTC began pricing in anticipated rate cuts, rising from $9,000 in late June to $13,000 by mid-July, ahead of the first cut.

• On the cut date, BTC hovered near $12,000 but retreated to $10,000 by December, showing that modest cuts alone may not drive parabolic rallies.

Ethereum and Layer-1 Tokens

• ETH rose around 20% in the three months after the first cut.

• Major L1 tokens moved in line with BTC, benefiting from liquidity but showing steady rather than explosive gains.

DeFi and Altcoins

• Smaller-cap DeFi tokens recorded early gains but soon stabilized.

The cycle suggested that moderate cuts create a supportive environment for participation without triggering extreme short-term volatility.

2020 Rate-Cut Cycle: Panic-Induced Easing during COVID-19

Bitcoin

• BTC dropped from $8,800 to $8,400 after the March 3 emergency cut, then crashed to $3,800 on March 12, a 50% plunge.

• Following aggressive Fed actions, including near-zero rates and unlimited QE, BTC rebounded to $10,000 by May and reached $69,000 in November 2021.

Ethereum and Layer-1 Tokens

• ETH plunged from $240 to $90 during March 2020 but recovered alongside BTC.

• By late 2021, ETH had surged to $4,800, underscoring the amplified effects of liquidity shocks on higher-volatility assets.

DeFi and Altcoins

• DeFi tokens experienced cascading liquidations during the crash.

• Liquidity surges later fueled one of the strongest bull runs in DeFi history, showing how panic cuts can transform into explosive growth once sentiment shifts.

2025 Rate-Cut Cycle: Early-Stage Observations

Including BTC, ETH, and other major cryptocurrencies, many have already set new all-time highs in 2025.

Moderate rate cuts at this stage appear more likely to stabilize the market, attract capital inflows, and support steady gains rather than trigger another round of exponential rallies.

While BTC and ETH may continue to see incremental appreciation, over-leveraged strategies are less likely to succeed in the short term.

By contrast, DeFi and altcoins have not shown particularly strong performances this year, underscoring that sustained growth depends more on broader sentiment and liquidity waves than on isolated rate cuts.

This makes the length of the current easing cycle and the cumulative basis points of cuts key variables to watch.

Future Easing Cycle and Cumulative Rate Cuts: Potential Implications for Crypto Markets

Current market expectations and forecasts from major financial institutions indicate that the Federal Reserve is likely to continue easing policy through 2025 and 2026. From the perspective of rate cuts, the initial 25 basis point reduction is only the beginning.

Based on current economic data projections, the entire easing cycle over the next 12 to 18 months could result in cumulative cuts of 100 to 150 basis points, potentially bringing the terminal rate down to around 3.0 to 3.5 percent. This magnitude sits between the 2019 cycle, which totaled 75 basis points, and the 2020 cycle, which lowered rates to near zero.

• 2025: Morgan Stanley and Deutsche Bank project that the Fed will implement 25 basis point cuts in each of the remaining meetings of 2025, resulting in a cumulative reduction of 75 basis points.

• 2026: The Fed’s dot plot indicates the possibility of a single 25 basis point cut in 2026.

Source: June 18, 2025 FOMC Summary of Economic Projections and Bondsavvy calculations.

These measures aim to address slowing economic growth and inflationary pressures and are expected to provide additional liquidity to markets.

The cryptocurrency market remains highly sensitive to investor sentiment and capital flows.

Liquidity injections tend to drive asset prices more than fundamental economic shifts alone.

Historically, the scale of rate cuts has determined the magnitude of capital entering crypto.

For instance, during the 2020 panic-induced cycle, the Fed slashed rates to near zero and launched unlimited quantitative easing. Its balance sheet expanded from $4 trillion to $9 trillion, flooding markets with $5 trillion in additional liquidity.

Even if only 1% of this flowed into crypto, it would have represented $50 billion, about one-third of the entire crypto market capitalization at the time.

These conditions could align to ignite a potentially explosive bull run:

• Institutional participation: Wall Street institutions are now far more engaged in crypto, amplifying the potential impact of any easing cycle.

• Liquidity inflows from expected rate cuts: Markets are anticipating further rate cuts, and if cumulative reductions exceed 100 basis points by Q1 2026, substantial capital could flow into crypto, serving as the primary driver of market gains.

• Seasonal tailwinds: Historically, Q4 has been a strong period for cryptocurrencies, which could further support upward momentum, though this is not guaranteed.

However, the effect of rate cuts will also depend on other factors, such as global economic conditions and overall market sentiment. Capital could also flow into other asset classes currently attracting interest, including U.S. equities, commodities like gold, and U.S. Treasuries.

Investors should therefore continue to monitor key indicators to gauge the effectiveness of future rate cuts:

• Labor market strength: U.S. nonfarm payrolls and weekly initial jobless claims to assess employment conditions; if labor market weakness persists, further rate cuts may be needed to stimulate growth.

• Tariff policies: The impact of U.S. trade and tariff measures on inflation and corporate costs, i.e., on price and production costs.

• Inflation stability: Whether CPI and core CPI remain stable under a series of rate cuts; if inflation overheats, the Fed may consider slowing the pace of easing.

• GDP growth: Sustained economic expansion; a slowdown may require deeper rate cuts to stimulate growth.

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