Rate Cuts and Their Implications for Crypto

While the broader market is cheering an all-but-certain rate cut this week, it’s worth reminding everyone of the risks underneath — and how close we might be to a major correction.

In short, here are a few points to keep in mind about this rate cut:

1. The move feels politically influenced. This cut seems driven more by pressure from the Trump administration than by purely data-driven, independent decision-making.
2. The Fed dropped FAIT in May 2025. By abandoning the Flexible Average Inflation Targeting framework, the Fed has given itself more freedom to move rates without being anchored to past inflation outcomes.
3. Inflation risk isn’t getting enough attention. For the size of the proposed cuts, the market appears oddly complacent about inflation risk.
4. Policy priorities may favor Treasury funding over inflation control. The administration may prioritize lowering short-term Treasury yields (sub-1-year bills) to ease funding pressures, rather than tackling the more complex, longer-term inflation problem.

If multiple cuts roll out over the coming months, that would likely help with Treasury financing, especially since a larger share of the debt has shifted to short-term bills. It could also buy time to pursue new tariff deals, which might ease pressure on longer-term yields.

What does this mean for crypto?

It could accelerate a bubble-and-bust dynamic. As cuts stack up, the surge in liquidity would likely flow into stablecoins first, and from there into broader crypto risk. Prices could rise substantially across the ecosystem.

But once short-term yields are stabilized through multiple cuts and stablecoin inflows, the Fed may eventually feel compelled to hike again — especially if inflation reasserts itself. Some argue hikes won’t happen because they would raise short-term funding costs. However, a portion of the liquidity that rushed into stablecoins will likely remain on-chain, creating an additional and persistent source of demand pressure on short-term yields even after hikes begin. That combination sets the stage for a sharp market correction.