As the US Federal Reserve prepares to adjust interest rates on Wednesday, a bigger shakeup at the central bank might have major consequences for cryptocurrency markets.
In a move that often heralds a surge in cryptocurrency markets, the Fed is anticipated to lower interest rates tomorrow. This is because lower yields on assets like bonds make riskier assets like cryptocurrency more appealing.
The anticipated rate cuts coincide with a new Federal Reserve appointment and a political battle. The administration of US President Donald Trump is attempting to remove Fed Governor Lisa Cook after accusing her of mortgage fraud. Stephen Miran, the White House’s economic advisor, has been confirmed by the Senate to serve on the board of governors.
Cook’s claims and the attempt to choose someone with connections to the administration may result in a less independent Federal Reserve, which is crucial in determining crypto policy.
What a political Fed implies for the policy of cryptocurrencies
A Biden-era selection, Cook is being targeted for removal by the Trump administration in an effort to increase its influence over the Federal Reserve. Trump dismissed Cook in a letter published on the White House X site on August 25 after she allegedly made false representations on one or more mortgage agreements.
Cook declined to resign and refuted the allegations. According to her legal team, the White House is “scrambling to invent new justifications for its overreach,” and the allegations were driven by political motivations. It is “unprecedented and illegal,” according to Cook.
The White House was unable to fire Cook from her job at the Federal Reserve on Monday when the Washington appeals court halted the move. This will enable her to continue working while the lawsuit is still ongoing.
Miran, the chairman of the Council of Economic Advisors and an economist who has previously expressed support for cryptocurrency, was confirmed by the Senate this morning.
Although Miran’s stint as a White House adviser is only temporary, ending in January 2026, he has not committed to leaving the job should it last past January 31.
Democratic legislators are concerned that the Fed and its monetary policy agenda will become more aligned with Trump’s political objectives.
“The Fed has a lot of power over banks, and in the end, banks are quasi-regulators of the crypto industry by deciding who can and cannot access financial services,” Aaron Brogan, founder of the crypto-focused law company Brogan Law, told.
A less independent Fed is unlikely to reduce that influence, but the policy may. He would bet that it would be more flexible and subject to the whims of the general public.
The Fed becoming political is a relatively new development. Brogan said, “Nobody knows,” when asked what a less independent Fed would entail for US monetary policy. A dependent Fed is said to have more liberal, careless monetary policy just because it is more sensitive to the volatile mood of the public. But because we haven’t seen it, it’s all guesswork. At the very least, Trump would cut rates during this administration.
The cryptocurrency market is preparing for federal reserve rate cut
As Washington legislators battle over the central bank’s future, cryptocurrency markets prepare for tomorrow’s Fed meeting, where rate cuts are anticipated.
The creator of the real-world asset (RWA) lending and borrowing ecosystem, RAAC, Kevin Rusher, told Cointelegraph that “markets are on edge.”
Resuming the cutting cycle begins to release the trillions of dollars in outstanding mortgage debt and the $7.2 trillion in money market funds.
According to his prediction, money will move into alternative yield-generating investments such as RWAs and decentralized financing (DeFi).
According to Alice Liu, research lead at CoinMarketCap, “high-beta layer 1s” like Ether and Solana are most impacted by changes in Fed interest rates.
Unlike Bitcoin, these trade like growth tech and are more reliant on liquidity and risk tolerance. She noted that investors could be considering investing more money in ETH’s “digital oil” story or SOL’s adoption growth, particularly because interest rate reductions would lead to more money being invested in riskier assets.
According to her, when interest rates decline, DeFi tokens become “relatively more attractive,” which boosts tokens associated with lending and DEX activity.Bitcoin can still maneuver “around big policy surprises and liquidity turns,” but it is “still the quality crypto” and less subject to fluctuations in interest rates.
“The S&P 500 usually loves it when the Fed cuts rates within 2% of all-time highs,” the Kobeissi Letter stated. Although the outcomes were uneven in the short term, “the S&P 500 has ended higher 1 year later in 20 of the last 20 times this has happened.”
This time, they anticipate the same result. “Long-term asset owners will celebrate, but there will be more volatility in the short term.”
Bitcoin and gold have recognized this. These asset types have seen a straight-line increase in price, which is pricing in the future. Gold and Bitcoin are aware that reduced interest rates will simply drive asset values higher against an already hot backdrop. This is an excellent opportunity to acquire long-term investments.
Traders applaud low interest rates regardless of who is in control of the Fed’s political battle, which is still ongoing.
