Bitcoin Could Soar No Matter What the Fed Decides: Here’s the Real Reason

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Key Takeaways:

  • The Fed may pause rates but flood the system with liquidity. Crypto could rally as a recession hedge. Oh joy!

  • The feeble US dollar and gold‘s shine signal that people are flocking to assets that actually mean something.

Ah, the US Federal Reserve Open Market Committee (FOMC) interest rate decision on May 7. What a momentous occasion for those of us who live for market drama. With the consensus leaning toward no change in interest rates (yawn), the real excitement lies in the Fed’s potential to flood the system with liquidity in a desperate bid to avoid economic doom. Because, why not? Bitcoin (BTC) and altcoins may just find themselves basking in the glow of this liquidity, like a cat in a sunbeam, if the US Treasury has to inject cash to prevent a full-blown recession.

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Economist and investor Jim Paulsen, ever the optimist, points out that whenever Fed funds trade above a “neutral” interest rate (read: not so great), the economy has historically stumbled toward a recession—or, in a slightly less catastrophic turn, a “growth recession.” This is a charming little period where the economy grows, but only just barely, with rising unemployment and very little demand. Ah, the sweet scent of stagnation. Paulsen’s analysis, backed by decades of historical trends since 1971, suggests that the Fed will eventually have to start lowering rates. The plot thickens, doesn’t it?

And then there’s Jerome Powell, the Fed Chair. Under immense pressure from US President Donald Trump (who’s been vocal about Powell not slashing rates fast enough), Powell might have to cave. It’s all very dramatic, like watching a Shakespearean tragedy unfold in real-time, except with more numbers and less soul-searching.

Why the Fed Might Start Easing (Spoiler Alert: They’re in Trouble)

So, why would the Fed ease? Well, for one, consumer inflation is higher than the Fed’s comfy 2% target, and April unemployment rates are still at a reasonably healthy 4.2%. That’s not exactly a picture of economic collapse, but markets, as we know, thrive on panic, not reason.

According to Treasury yield futures, there’s a 76% chance that rates will be 4.0% or lower by Sept. 17, down from a 90% chance just a week ago. Traders seem less confident that the Fed will ease. But in the grand scheme of things, who cares what the traders think? This could lead to the Treasury injecting liquidity to prop up government spending—cue the applause from crypto enthusiasts everywhere.

But even if the Fed does nothing, the recent $20.5 billion Treasury bond purchase on May 5 might just be a sign of more interventions to come. After all, nothing screams “bullish for crypto” like the government pouring money into the system. With the US dollar faltering, investors are jumping into assets that actually have value—like Bitcoin. Go figure.

The US Dollar Index (DXY) has fallen below 100 for the first time since July 2023, which is like watching a once-proud champion stumble. Meanwhile, gold has surged more than 12% in the past month and is now just 2% shy of its all-time high of $3,500. Gold’s doing just fine, thank you very much, and Bitcoin could very well be next in line for a similar spike as investors shift their confidence away from the dollar and toward more tangible assets.

While the chance of multiple rate cuts has shrunk, this still bodes well for cryptocurrencies. If the Fed caves under pressure and expands its balance sheet, inflation will rise, and fixed-income investments will become even less appealing. In that scenario, what would you want to hold? A bond, or a shiny, decentralized piece of the future? Hmmm…

Disclaimer: This is for informational purposes only and should not be considered as investment advice. The views expressed are entirely the author’s, and not necessarily those of CryptoMoon (or anyone else for that matter). Now, go forth and make your financial decisions wisely—or recklessly, whatever floats your boat. 😏

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2025-05-07 00:08