As the U.S. Federal Reserve gears up for its much-anticipated rate cut on September 17, Bitcoin bulls are eagerly watching the bond markets. Many believe that a reduction in interest rates could lower Treasury yields, sparking a renewed appetite for riskier investments like cryptocurrencies. However, the path ahead may not be as straightforward as it seems.
Fed Rate Cuts on the Horizon
The Federal Reserve is expected to announce a 25 basis point cut, bringing the benchmark rate down to a range of 4.00%-4.25%. This adjustment is the latest in a series of rate cuts aimed at countering economic headwinds, and markets anticipate further easing over the next year, potentially lowering rates to around 3%. The fed funds futures market even predicts a dip below 3% by the end of 2026. Bitcoin enthusiasts are hopeful that this easing will drive Treasury yields down, creating a conducive environment for the cryptocurrency market to thrive.
Complex Bond Market Dynamics
While the prospect of lower rates is enticing, the bond market’s reaction could be more nuanced. Short-term Treasury yields might decline due to Fed actions, but longer-term yields could remain stubbornly high. This is largely due to ongoing fiscal concerns and persistent inflationary pressures.
The U.S. government plans to ramp up its issuance of Treasury bills and bonds to fund recent tax cuts and increased defense spending under the Trump administration. The Congressional Budget Office estimates these policies could add over $2.4 trillion to primary deficits in the next decade, potentially increasing debt by as much as $5 trillion if extended permanently. An increased supply of debt could depress bond prices, pushing yields higher—a dynamic that Bitcoin bulls need to consider.
Inflation and Fiscal Concerns
Persistent inflation is another factor complicating the outlook. Although the Fed’s rate cuts since last September have led to some labor market softening, inflation has been creeping upward. The inflation rate rose to 2.9% last month, up from 2.4% when the Fed initially began easing. This trend challenges the assumption that rate cuts will automatically lead to lower yields.
Kathy Jones, managing director and chief income strategist at the Schwab Center for Financial Research, highlights that investors are demanding higher yields on long-term Treasuries to offset risks associated with inflation and a potentially depreciating dollar. These concerns could keep long-term yields elevated, even as short-term rates decrease.
Easing Already Priced In?
Market behavior suggests that some rate cuts have already been priced in, as evidenced by recent movements in the 10-year Treasury yield. Last week, the yield dropped to 4%, its lowest level since April. This decline represents a significant drop from its May high of 4.62%.
Padhraic Garvey, CFA, regional head of research for the Americas at ING, warns that this dip might be an overreaction. He suggests that higher inflation in the coming months could necessitate a recalibration of long-term yields. The market’s response after the September 17 announcement could mirror the pattern seen in 2024 when a similar situation unfolded.
Lessons from 2024
In 2024, the 10-year Treasury yield fell sharply before the September rate cut, but post-cut dynamics saw it rise to 4.57% by year-end, eventually reaching 4.80% in January. This increase was driven by a combination of economic resilience, sticky inflation, and fiscal worries. Given the current economic and fiscal landscape, a repeat of this pattern can’t be ruled out.
Implications for Bitcoin
Bitcoin’s reaction to these macroeconomic shifts is a topic of keen interest. Last year, BTC soared from $70,000 to over $100,000 between October and December, despite rising long-term yields. This rally was largely attributed to regulatory optimism under President Trump and increased corporate adoption of cryptocurrencies.
However, the factors underpinning that surge have weakened over the past year. With the possibility of rising yields ahead, Bitcoin’s trajectory could face headwinds. While the digital currency remains a beacon of hope for many, the complex interplay of fiscal policy, inflation, and interest rates could temper expectations.
As the financial world waits for the Fed’s next move, Bitcoin bulls will be watching closely, hoping for a favorable environment but bracing for potential challenges. The coming months promise to be a critical juncture for both traditional markets and the burgeoning cryptocurrency sector.
Steve Gregory is a lawyer in the United States who specializes in licensing for cryptocurrency companies and products. Steve began his career as an attorney in 2015 but made the switch to working in cryptocurrency full time shortly after joining the original team at Gemini Trust Company, an early cryptocurrency exchange based in New York City. Steve then joined CEX.io and was able to launch their regulated US-based cryptocurrency. Steve then went on to become the CEO at currency.com when he ran for four years and was able to lead currency.com to being fully acquired in 2025.
