Key takeaways:
-
The Federal Reserve may cut rates early if global trade, the energy supply or the US relationship with the Middle East deteriorates.
-
A weakening dollar could be followed by an acceleration in Bitcoin price.
The United States Federal Reserve (Fed) held interest rates steady at 4.25% on Wednesday, a decision that had been widely anticipated by investors. The next monetary policy meeting is scheduled for July 30, but the Fed could act earlier if a major disruption occurs.
On Friday, Fed Governor Christopher Waller said that “policymakers should be looking to lower interest rates as early as next month.” During an interview with CNBC, Waller explained that the Fed should slowly start to ease rates as “inflation is not posing a major economic threat.”
While the likelihood of such a move remains extremely low, it’s worth examining the potential impact on Bitcoin (BTC) and what factors might compel the central bank to shift away from its current cautious stance.
US war in the Middle East tensions and trade risks could force rate cuts
Emergency interest rate cuts are rare, and usually follow a credit shock, geopolitical escalation, or a sudden breakdown in financial stability. The last such cut came in March 2020, when the Fed slashed rates by 100 basis points in reaction to the global spread of COVID-19.
Investor sentiment plummeted during the early panic, and even gold dropped to a seven-month low. Still, the long-term impact favored risk assets. The S&P 500 recouped its losses by late May 2020, while Bitcoin reclaimed the $8,800 level by late April 2020. In essence, the panic subsided in less than three months.
Despite adoption by major corporations as a treasury reserve, Bitcoin remains strongly correlated to tech stocks. Between March and May 2025, its 30-day correlation with the Nasdaq 100 stayed above 70%. Investors continue to view Bitcoin as a high-beta play on future economic growth.
Rising tensions in the Middle East have reemerged as a major macro risk. The Strait of Hormuz handles roughly 20% of the worldwide oil and gas supply. Any disruption there increases energy costs and uncertainty. As businesses reduce operations under such conditions, inflation expectations cool and hiring slows, creating room for monetary easing.
Trade remains another source of fragility. If the temporary tariff truce between the US and China collapses, or if key partners like Canada or the EU abandon negotiations, US exports could suffer. To counteract weakening demand and protect the domestic industry, the US Fed may resort to rate cuts that support credit expansion and investment.
Related: Here’s what Bitcoin did while the US added to its $37T debt
Weak dollar boosts Bitcoin’s appeal
Higher interest rates don’t increase the federal debt, but they complicate refinancing costs. The 20-year Treasury yield has climbed to 4.9% from 4.6% over the past three months, a sign that investors still doubt inflation is under control. The market is demanding a higher premium, signaling uncertainty about the Fed’s stance.
Meanwhile, the US Dollar Index (DXY) has dropped to 99 from 104 in March, nearing its lowest level in three years. If markets read a surprise cut as a signal of recession risk, the US dollar could weaken further. In that scenario, demand for inflation-resistant assets like Bitcoin may rise sharply, making a breakout above $120,000 not just possible, but increasingly logical.
This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
