Crypto doesn’t move in a vacuum. When the Fed changes the price of money, it changes the appetite for risk—and that flows straight into (or out of) Bitcoin and altcoins. Here’s the simple playbook.
TL;DR
• Fed cuts rates → money gets cheaper → investors take more risk → crypto often benefits.
• Fed hikes rates → borrowing gets pricey, USD tends to strengthen → investors de-risk → crypto faces pressure.
• But it’s not automatic: the reason behind a cut/hike, the dollar’s strength, real yields, global liquidity, and crypto-native news all matter.
How it works (quickly)
1. Cost of Capital & Risk Appetite
Lower rates make borrowing cheaper and cash yields less attractive, so capital hunts for higher returns (stocks, crypto). Higher rates do the opposite.
2. U.S. Dollar (DXY) & Real Yields
BTC often moves opposite a stronger USD and higher real yields. These are “macro headwinds” for assets priced in dollars. Correlations change over time, so treat them as signals—not laws.
3. System Liquidity (QE/QT, M2)
Crypto is sensitive to global liquidity. When liquidity expands (or tightening eases), risk assets breathe; when liquidity is drained, markets feel “dry.”
“Fed cut = always bullish?” — Not necessarily
• Cut because inflation cools & growth holds → often supportive for risk.
• Cut because growth is cracking → can be a bull trap if fear dominates; markets may still de-risk.
Recent context (big picture)
• On Oct 29, 2025, the Fed cut 25 bps, taking the target range to 3.75–4.00% (from 4.00–4.25%). Earlier, in 2022–2023, the Fed had lifted rates to a peak around 5.00–5.25% and held before easing.
Meaning: Policy isn’t at 2023’s peak anymore, but crypto’s reaction still depends on the dollar, real yields, and liquidity.
Common Myths
• “The Fed is everything.” Not true — crypto also moves on spot ETF flows, halvings, regulation, DeFi/exchange events, stablecoin supply, and tech upgrades.
• “Weak USD = BTC up.” Not always — correlations change by market regime.
What to Watch
• FOMC schedule, dot plot, Fed chair remarks
• CPI & NFP → rate expectations
• DXY & 10Y real yields → macro backdrop
• Liquidity/M2, financial conditions
• Crypto factors: ETF flows, stablecoin supply, upgrades, regulation news
Bottom Line
• Rate cuts → higher risk appetite (bullish if growth steady, inflation cools)
• Rate hikes → lower risk appetite (bearish)
• Always check why rates move—and track USD, real yields, liquidity, and crypto-specific catalysts.
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