Key points:
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Surprisingly, the Fed’s lower interest rates may reduce the attractiveness of fixed income, pushing some capital to assets like Bitcoin.
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Bitcoin benefits from loose monetary policy as excess liquidity and strong macro conditions enhance risk appetite.
Bitcoin (BTCIf the US Federal Reserve (Fed) has a staggering cut below the current 4% level, it could be more than $140,000. While most market participants expect interest rates to change today’s Federal Open Market Committee (FOMC) policy meetings to be held, even a small reduction can reduce the return on fixed income, pushing traders to higher alternatives and increasing demand for risky assets.
The Fed meeting is under strong macro data and inflation easing
According to the CME FedWatch tool, which calculates the meaning of U.S. Treasury notes pricing, with a 97% chance of maintaining the current level. What makes the situation unique is that the meeting is because the macroeconomic data have been strong – inflation It has cooled down, the risk of a recession has disappeared, and growth has stabilized.
According to the Bureau of Economic Analysis’s advance estimate, the U.S. economy grew at a rate of 3% per year in the second quarter. After rapid growth in imports before President Trump Global Trade War. Market sentiment changes drastically: The likelihood of a U.S. recession in 2025 fell to 17% on the Polmarket forecast platform, down from the 66% peak in May.
Inflation pressure has also eased. The June Manufacturer Price Index (PPI) was released on July 16, up 2.3% from the same period last year, the lowest reading since September 2024. CNBC reports that U.S. import tariffs have only marginal impact on the economy and consumer prices. Even so, Fed officials remain vigilant about the potential downstream impact of trade policy.
U.S. President Trump has repeatedly criticized the Fed’s monetary stance and called on Chairman Jerome Powell to lower interest rates without delay. “No inflation! Let people buy and refinance the home!” the president urged. But Powell showed no sign that he planned to change courses this week, according to Yahoo Finance.
Bitcoin benefits from loose policies, but depends on broader money supply growth
For Bitcoin investors, loose monetary policy is often supported, although it depends on the Fed’s benchmark rate. Risk assets are affected by the increase in the money supply, especially M2, which include cash, savings accounts, deposit certificates and money market funds. The M2 expansion was also affected by the U.S. Treasury Department’s decision on debt issuance.
Higher liquidity environments tend to benefit the S&P 500 and Bitcoin, although the effects are usually gradual. Reducing from 4% to 3.75% tax rate could lift investors out of $25.4 trillion in government and companies Bond Market. Even if inflation is below 2.5%, the advantage of fixed income yields is reduced, making risky assets more attractive.
Lower interest rates also reduce borrowing costs for companies and households, encouraging greater leverage over time. This increases liquidity and provides an impact on economic activity, which in turn is willing to take risks. Historically, Bitcoin has performed well at this stage, when more capital is available and job market conditions remain stable.
Related: Bitcoin momentum loss is a journey to a frenzy, not a trend change
At first glance, the $140,000 Bitcoin price seems ambitious and needs to rise 19% from the current $117,600. However, such a move would mean a $27.8 trillion market cap, which is still 87% off Gold’s $22.5 trillion valuation. For Perspective, NVIDIA (NVDA) (now the most valuable company in the world) has a market capitalization of $436,000.
While the likelihood of lowering tax rates this Wednesday is low, Bitcoin will be one of the biggest beneficiaries if it happens. The S&P 500 has already been worth $56.4 trillion, with less gains from investors who transfer fixed income.
This article is for general information purposes and is not intended to be considered legal or investment advice. The views, thoughts and opinions expressed here are the authors alone and do not necessarily reflect or represent Cointelegraph’s views and opinions.
