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Dovish Fed Chair: Blessing for Bitcoin or Threat to the Economy?

Dovish Fed Chair: Blessing for Bitcoin or Threat to the Economy?

Bitget-RWA2025/09/27 04:13
By:Coin World

- The Fed's 25-basis-point rate cut sparks debate on Bitcoin's potential rally amid speculation about the next dovish chair. - Historical data shows Bitcoin typically benefits from sustained rate cuts, with 2020's emergency easing correlating to a $28,000 rebound. - Trump's shortlisted Fed candidates (Hassett, Waller, Warsh) all favor rate cuts, with Warsh's balance-sheet reduction plan seen as bullish for risk assets. - Market uncertainty persists as Fed's inflation forecasts and policy tone—rather than c

The recent 25-basis-point interest rate reduction by the U.S. Federal Reserve has sparked renewed debate about Bitcoin’s prospects for a strong upward move, especially as speculation grows regarding the policy direction of the next Fed chair. In the past,

has typically responded positively, though not always consistently, to rate cuts—particularly when the central bank maintains an overall dovish approach. The September 2025 rate cut, which was the first since December 2022, saw Bitcoin initially climb by 1% before pulling back, highlighting investor uncertainty about the Fed’s future policy signals title4 [ 4 ]. Experts point out that the Fed’s messaging and policy outlook, rather than the rate cut alone, will likely be the main driver of Bitcoin’s direction. If the Fed signals a willingness to continue easing or to cut rates more aggressively, this could weaken the dollar and boost liquidity for riskier assets, which has historically benefited Bitcoin. For instance, the emergency rate reductions in 2020 coincided with Bitcoin’s rapid recovery from $4,000 to over $28,000, despite an initial sharp decline title1 [ 1 ].

The possibility of a more dovish Fed chair has become a major talking point. President Donald Trump is reportedly considering three main candidates—Kevin Hassett, Christopher Waller, and Kevin Warsh—all of whom have indicated support for rate cuts.

CEO Mike Novogratz has suggested that appointing a dovish chair could spark a dramatic surge in Bitcoin, potentially sending its price toward $200,000, though he warned that such a move could undermine the U.S. economy by weakening the dollar and threatening the Fed’s independence title7 [ 7 ]. Kevin Warsh, a leading candidate and former Fed governor, has advocated for shrinking the Fed’s balance sheet to allow for lower rates, which could further benefit risk assets title6 [ 6 ]. Still, opinions in the market are split; if the next chair is more hawkish or if rate cuts are postponed, Bitcoin’s upside could be limited, as was the case in March 2020 when emergency easing failed to prevent a 40% drop in Bitcoin’s value title2 [ 2 ].

The Fed’s guidance on future policy and its inflation outlook will be crucial. In December 2024, a revised inflation forecast of 2.5% for 2025 and a reduction in expected rate cuts from three to two led to a 4.6% decline in Bitcoin after the announcement title5 [ 5 ]. This demonstrates how sensitive the crypto market is to macroeconomic developments. Although lower rates generally increase liquidity and weaken the dollar—conditions that tend to favor Bitcoin—efforts by policymakers to keep inflation in check could limit potential gains. The Fed’s current projections indicate two more rate cuts in 2025, but differing views among FOMC members highlight ongoing uncertainty title4 [ 4 ].

Both retail and institutional investors are taking a more cautious approach. Strategies such as diversification, lowering leverage, and using dollar-cost averaging are being recommended to manage volatility, especially around Fed announcements. Continued inflows into spot ETFs, reflecting steady institutional participation, could further fuel a Bitcoin rally if dovish policies are enacted title2 [ 2 ]. However, alternative cryptocurrencies remain highly volatile and may experience sharper corrections during periods of uncertainty title2 [ 2 ].

Regulatory and geopolitical developments add further complexity. A dovish Fed could weaken the dollar, potentially encouraging more global adoption of Bitcoin as a hedge. On the other hand, increased regulatory scrutiny—such as SEC decisions on crypto ETFs—could offset the positive effects of looser monetary policy title2 [ 2 ]. Under a Trump administration, the balance between pro-crypto initiatives (like holding Bitcoin reserves) and risks to monetary independence remains unpredictable title9 [ 9 ].

In conclusion, Bitcoin’s short-term outlook will be shaped by the Fed’s policy direction, the next chair’s approach, and wider macroeconomic trends. While a shift toward more accommodative policies could drive significant gains, investors should also consider risks such as stagflation, regulatory challenges, and market saturation. Careful attention to the Fed’s communications is advised, as the interplay of these factors will determine whether Bitcoin continues its rally or faces a correction.

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Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.

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