Bitcoin’s Potential Boom: How a Surprise Fed Rate Cut Could Spark a Rally

Imagine a scenario where the US Federal Reserve surprises everyone by cutting interest rates below the current 4% level. It may seem unlikely, but if it happens, Bitcoin could be one of the biggest beneficiaries. In fact, some experts believe that Bitcoin’s price could skyrocket to over $140,000 if the Fed decides to loosen its monetary policy.

The Current State of the Economy

As the Federal Open Market Committee (FOMC) meets to discuss interest rates, the US economy is showing strong macrodata and a decline in inflation. The latest numbers from the Bureau of Economic Analysis indicate that the US economy grew 3% in the second quarter, beating expectations. This growth, combined with low inflation and a strong labor market, has shifted the market mood significantly. The likelihood of a US recession in 2025 has fallen to 17% on the Polymarket Prediction platform, down from a peak of 66% in May.

Inflation and Interest Rates

The June Producer Price Index (PPI) showed a modest increase of 2.3% year-over-year, the lowest reading since September 2024. While US President Trump has been calling for lower interest rates, Fed Chairman Jerome Powell has not indicated any willingness to change course. However, if the Fed does decide to cut rates, it could have a significant impact on the attractiveness of fixed-income assets and push investors towards riskier assets like Bitcoin.

Bitcoin’s Love Affair with Loose Monetary Policy

Bitcoin has historically benefited from loose monetary policy, as excess liquidity and strong macro conditions increase the appetite for risk. A higher liquidity environment is good for both the S&P 500 and Bitcoin, although the effect is often gradual. If interest rates fall from 4% to 3.75%, it could discourage investors from putting their money in government bonds and corporate debt, making risk assets more attractive.

The Impact of Lower Interest Rates

Lower interest rates would not only reduce credit costs for companies and households but also promote a larger lever over time. This additional liquidity would boost economic activity and increase investors’ willingness to take on risk. In the past, Bitcoin has thrived in such environments, and a surprise rate cut could be just the catalyst it needs to break out of its current range.

A $140,000 Price Tag: Ambitious but Not Impossible

While a Bitcoin price of $140,000 may seem ambitious, it’s not entirely impossible. Such a move would represent a 19% increase from current levels, but it would still put Bitcoin’s market capitalization at a discount of 87% to gold’s valuation. For perspective, Nvidia, the most valuable company in the world, has a market capitalization of $4.36 trillion. If the Fed does surprise everyone with a rate cut, Bitcoin could be one of the biggest winners.

This article is for general information purposes only and should not be considered as investment or legal advice. The views and opinions expressed are those of the author and do not necessarily reflect the views of Cointelegraph or its affiliates.