Fed’s Shift to a Dovish Stance Drives Bitcoin Rally Through Increased Liquidity and a Softer Dollar

Bitcoin’s recent climb to $117,000 was sparked by the U.S. Federal Reserve’s shift toward a more accommodative stance, as Chair Jerome Powell hinted at a possible rate reduction during the September 17–18 meeting. After Powell’s remarks at Jackson Hole, which suggested the Fed may adjust its monetary policy in response to easing inflation and a cooling job market,

jumped more than 5% in just a few minutes, resulting in $400 million worth of short positions being liquidated Bitcoin Gets A Price Boost From Fed Chair Jerome … [ 1 ]. This rally lifted the overall crypto market value to $4.1 trillion, with other major coins like and also experiencing significant gains. The CME Group’s FedWatch Tool showed an 89% chance of a 25-basis-point cut, and the Fed’s revised dot plot pointed to more easing ahead Fed’s Dovish Turn: How It Boosted Bitcoin to $117K [ 2 ].

Past events highlight the strong connection between Federal Reserve actions and cryptocurrency trends. When the Fed slashed rates during the 2020 pandemic, Bitcoin soared from a low of $4,000 to over $28,000 by year’s end, driven by increased liquidity and a weaker dollar. In 2019, initial rate cuts had a muted effect but later contributed to a broader appetite for risk assets Is Bitcoin Price Set For Next Rally? - Forbes [ 3 ]. Experts believe Bitcoin gains from dovish Fed moves through three main channels: more liquidity, a depreciating dollar, and a shift of capital into riskier investments. The current Fed policy shift fits this pattern, as lower Treasury yields and cheaper borrowing encourage investors to look for higher returns in assets like cryptocurrencies Federal Reserve Cuts Rates: What Does This Mean for Crypto? [ 4 ].

Speculation about a dovish replacement for Powell has become a new driver for Bitcoin’s next potential surge. Galaxy Digital CEO Mike Novogratz cautioned that appointing a dovish Fed chair could lead to a dramatic spike in Bitcoin, possibly reaching $200,000. “If the Fed cuts rates aggressively and loses its independence, Bitcoin enters a whole new realm,” he said, though he also warned of the risks such a move could pose to the U.S. economy Mike Novogratz Predicts 'Biggest Bull Catalyst' For Bitcoin [ 5 ]. President Trump’s list of possible Fed chair candidates—Kevin Hassett, Christopher Waller, and Kevin Warsh—features individuals with varying degrees of dovishness, with Waller already supporting rate cuts for July. Market watchers remain wary, as Novogratz pointed out that investors may not fully react to Trump’s unpredictable decisions until they actually happen Bitcoin’s ‘biggest bull catalyst’ may be the next Fed chair pick: … [ 6 ].

Institutional investment and broader economic trends are also increasing Bitcoin’s sensitivity to Fed decisions. Since Powell’s speech, spot Bitcoin ETFs have attracted $150 million in net inflows, with BlackRock’s IBIT leading at $20 billion for the year. The dollar’s decline, with the 10-year yield now at 4.255%, has further boosted risk assets. Still, there are hurdles ahead, such as possible volatility from mixed economic reports and regulatory challenges. A stronger-than-expected August PCE inflation reading could test Bitcoin’s strength, while delays in rate cuts might slow its momentum Fed Cuts Rate in 'Risk Management' Move as Bitcoin Eyes [ 7 ].

Looking forward, the relationship between Fed policy and the crypto sector will depend on how quickly rates are cut and the stance of the next Fed chair. While markets have largely anticipated the immediate 25-basis-point reduction in September, the updated dot plot points to another 50 basis points of easing by the end of the year. This path could support a prolonged Bitcoin rally, especially if ETF inflows persist and risk appetite stays strong. As Novogratz remarked, “The Fed is cutting when it probably shouldn’t, and if a major dove takes over—it changes the whole conversation.” Nonetheless, investors should remain vigilant, as economic uncertainty and regulatory changes could disrupt the bullish outlook Will Fed Rate Cuts Trigger a Bitcoin Rally in 2025? Here’s What ... [ 8 ].