The Federal Reserve’s interest rate policies have long been a critical force shaping financial markets, and in recent years, they have increasingly influenced the cryptocurrency market. That all changed this week after the Fed cut rates for the first time in years. The change in monetary policy could have major implications for the crypto market, potentially signaling the start of a new bullish phase.

Crypto Has Been Fighting The Fed Since 2022

Cryptocurrencies, despite being decentralized and operating outside traditional financial systems, are heavily influenced by macroeconomic factors, including interest rate changes. When rates are low, risk assets like cryptocurrencies often benefit. During periods of easy monetary policy—where borrowing is cheap and liquidity is abundant—investors look for higher yields, and cryptocurrencies become a more attractive investment.

This was clearly demonstrated during the last crypto bull market, which began in 2020. At the time, interest rates were near zero in response to the economic crisis caused by the COVID-19 pandemic. The low-rate environment, coupled with widespread liquidity injections, fueled a speculative boom in the crypto market. Bitcoin surged to an all-time high of $69,000 in November 2021. As rates remained low through the early months of 2022, Bitcoin and altcoins saw rapid growth.

However, when inflation concerns grew and the Federal Reserve began signaling its intent to raise rates, the party quickly ended. By March 2022, rising interest rates had taken a heavy toll on the broader economy, including cryptocurrencies. Almost like flicking a light switch, the crypto market lost all its momentum and buyers disappeared. The bear market followed, taking out investors and companies alike, and it took Bitcoin ETFs to restart the bull market years later.

Rising Interest Rates and the Crypto Bear Market

The aggressive rate hikes implemented from 2022 through early 2023 aimed to curb inflation but also dampened speculative assets like cryptocurrencies. As borrowing became more expensive, riskier assets suffered. Bitcoin fell to a low of around $16,000 by early 2023. This period marked one the most violent and volatile bear markets in Bitcoin’s history. The crypto market struggled mightily with tightening monetary conditions and reduced liquidity.

As interest rates peaked at 5.25%, liquidity in the market dried up, pushing investors toward safer investments with better returns, such as bonds. This trend persisted throughout much of 2023 and into 2024, keeping cryptocurrencies under pressure. However, the Federal Reserve’s decision to cut rates in September 2024 signaled a potential change in sentiment.

The Recent Rate Cut: A Bullish Signal for Crypto?

The recent 50 basis point rate cut by the Federal Reserve is seen by many as the first major reversal in the central bank’s monetary tightening cycle, and it could mark a turning point for the crypto market. It was a bold move to cut by 50 basis points, and was actually the largest rate cut since September 18th 2007.

Lower interest rates reduce the cost of borrowing and can increase market liquidity, which may flow into riskier assets like cryptocurrencies. Historically, interest rate cuts have often preceded bullish market conditions, as they stimulate both economic activity and speculative investments.

For crypto investors, the Fed’s decision to ease its policy stance may signal a fresh influx of capital into digital assets like Bitcoin, Ethereum, and various altcoins. If the rate cuts continue and borrowing costs decrease further, it could be the beginning of a new crypto bull market. Already, Bitcoin has shown signs of recovery, rallying from around $60,000 to near $63,000 following the rate cut announcement.

Bitcoin Update

In the immediate aftermath of the rate cut, BTC has already found some buyers. Bitcoin is up by over 5% since Thursday morning, and altcoins are green almost across the board this week. Bitcoin is within a hair of breaking above $65,000, which would mark the first higher high in months. BTC is beginning to build up some momentum right now. It’s critical to hold above $62,000, but the big level all eyes are watching is $65,000.

We’re potentially just a few days away from Bitcoin not only confirming the end of the prolonged downtrend, but also the start of the next leg of the bull market. Consider Bitcoin breaking the $65,000 level as the bat signal to the rest of the crypto market indicating that the bull market is back on.

Bitcoin Dominance and Market Dynamics

Bitcoin dominance, which refers to the percentage of the total cryptocurrency market capitalization that is represented by Bitcoin, is another important factor in understanding the state of the crypto market. When Bitcoin dominance is high, it typically means that investors are favoring Bitcoin over altcoins, suggesting a more cautious or risk-averse market environment. On the flip side, when Bitcoin dominance is low, it often signals that investors are willing to take more risks and are pouring money into altcoins, which are generally seen as higher risk but potentially higher reward.

Currently, Bitcoin dominance stands at 58.5%, the highest it has been since the last major bull market peak in April 2021. This suggests that while there have been notable moves in the altcoin space—especially in sectors like AI and meme coins—Bitcoin continues to lead the market. However, a shift in Bitcoin dominance could indicate the start of an “alt season,” a period when altcoins outperform Bitcoin.

As Bitcoin approaches key resistance levels around $65,000, the market is watching closely to see if the recent momentum will carry it through to new highs. A breakout in Bitcoin could trigger a broader rally across the crypto market, potentially leading to a decline in Bitcoin dominance as investors seek opportunities in altcoins. We’ll be closely monitoring Bitcoin dominance in the next few weeks to see if we are at a potential turning point. There may be an attention shift towards altcoins coming in the near future, and we’ll be ready to take advantage when that happens.

Final Thoughts

The crypto market has been in a strange sort of limbo since the beginning of August. After months of downtrend it seemed like the crypto market finally set the final bottom on August 5th. However, since then Bitcoin has been bouncing up and down without breaking through any real key levels. We’ve been waiting for a catalyst that crypto needed to muster up enough positive momentum to smash through some key resistance levels. We might have finally just got the catalyst we’ve been looking for, and now all we can do is sit back and watch things play out.

The upcoming weeks are crucial for the crypto market, and investors will be closely monitoring whether Bitcoin can sustain its newfound momentum. A breakout past $65,000 could act as a signal for the broader market, igniting the next leg of the bull run and possibly ushering in a period of growth for both Bitcoin and altcoins. The Federal Reserve’s rate cuts could ultimately set the stage for another explosive phase in the cryptocurrency market, and those paying close attention may be well-positioned to capitalize on the shifting dynamics.

This article previously appeared on Investing Daily.