When rates are high and cash yields over 5%, opportunity costs for holding non-yielding assets like Bitcoin rise sharply.
That’s been part of the headwind in 2024–2025, as investors parked record sums in money markets.
But with the Fed now expected to deliver 2–4 rate cuts of 25 bps each this year, the backdrop changes:
- Falling short-term yields reduce the yield advantage of cash, pushing investors to seek higher returns in riskier or alternative assets.
- Dollar weakness often follows easing cycles, supporting Bitcoin’s narrative as an alternative store of value.
- Liquidity rotation out of money markets can fuel broader risk appetite, including speculative demand for crypto.
In prior easing cycles, Bitcoin has shown explosive upside. After the Fed pivot in 2019, Bitcoin rallied over 100% in the subsequent year. While crypto remains highly volatile and subject to regulatory overhangs, the macro case improves markedly in an easing environment.
Investor perspective:
- Bitcoin may outperform traditional risk assets in a broad “risk-on” rotation, but with higher volatility.
- Allocations should reflect risk tolerance and portfolio goals, recognizing that while equities might target ~10–20% upside, Bitcoin could deliver 20–100%+ moves if the Fed’s easing cycle unfolds aggressively.
In short, for investors anticipating rate cuts, Bitcoin isn’t just a speculative play—it’s a levered bet on the same liquidity and risk rotation that will drive moves out of cash, into bonds, credit, and equities. It’s the tip of the risk spear, and worth considering carefully in a diversified allocation strategy.
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