Will a softer dollar and looser monetary policy ignite a surge in crypto—or could they end up derailing it?

The Federal Reserve in the United States is widely expected to lower interest rates for the first time in the current cycle at its meeting scheduled for September 16–17, 2025. Markets are already reacting to the likelihood of a 25 basis point reduction in the Fed’s target rate, a move that has sparked discussion across various asset classes, including digital currencies. The present target range is 4.00%–4.25%, with market participants pricing in over a 90% probability of a quarter-point cut. Nonetheless, there remains a chance the Fed could surprise with a bigger adjustment or even no change at all.

The anticipated rate reduction is likely to boost market liquidity and put downward pressure on the U.S. dollar, trends that have historically favored assets with higher risk profiles, such as cryptocurrencies. In a practical sense, an easing monetary stance can lower the cost of borrowing for traders, including those seeking margin or crypto-collateralized loans, and may prompt investors to move capital from safer bonds to riskier opportunities. A weaker dollar generally acts as a tailwind for

, which many view as a digital counterpart to traditional currencies. In fact, the U.S. Dollar Index has declined leading up to the Fed meeting, and key cryptocurrencies have experienced price increases.

However, not all experts are optimistic about the effects of a rate cut. Some caution that if the move is seen as a reaction to underlying economic challenges—such as elevated inflation, weakening employment growth, or ongoing stagflation worries—the potential gains for cryptocurrencies could be muted. These broader economic risks might restrain bullish sentiment, even though looser policy typically benefits risk assets. Past events, like the emergency rate cuts in 2020 that coincided with Bitcoin plunging by 40%, highlight how important context is in interpreting the Fed’s actions.

The Federal Reserve’s messaging will be critical in shaping the market’s reaction, especially during the press conference that follows the meeting. If Fed Chair Jerome Powell signals ongoing support, it could fuel further risk-taking and optimism. On the other hand, a more reserved or hawkish stance might dampen enthusiasm. These dynamics are already visible in the broader markets, as both the S&P 500 and Nasdaq have reached new highs in anticipation of the Fed’s decision.

Research from academia also supports the idea that U.S. monetary policy decisions have a notable impact on crypto markets. A recent paper published in Finance Research Letters found that shocks in U.S. monetary policy noticeably affect retail interest in cryptocurrencies, as seen in app download and usage trends. According to the study, tighter policy tends to reduce speculative activity, whereas looser policy—like rate reductions—can draw more participants into the crypto space. The findings emphasize the link between monetary conditions and retail trading behavior, particularly in speculative environments.

For individual investors, the consequences of the Fed’s decision are complex. While rate cuts can open the door to crypto gains, they also bring increased price swings and the possibility of sharp downturns, especially among altcoins. Traders are encouraged to manage these risks through diversification, careful use of leverage, and dollar-cost averaging. Historically, Bitcoin has tended to outperform alternative coins during periods of macroeconomic instability, as investors flock to assets that are more established and liquid.

To sum up, the Fed’s anticipated rate cut is set to impact cryptocurrency markets via several channels, such as increased liquidity, a weaker dollar, and shifts in investor mood. However, ongoing economic challenges—including inflation and stagflation—create uncertainty that could limit any sustained rally. Retail investors should proceed carefully, employing risk management strategies to handle possible market volatility.