The U.S. Federal Reserve is set to adjust interest rates on Wednesday. Meanwhile, personnel changes at the central bank could have far-reaching effects on the cryptocurrency market.
The Fed is expected to lower interest rates tomorrow, a move typically seen as favorable for the cryptocurrency market: as yields on assets like bonds decline, high-risk assets such as cryptocurrencies become more attractive.
This anticipated rate cut comes amid political controversies and new appointments at the Fed. The Trump team has accused Fed Governor Lisa Cook of mortgage fraud and is seeking her removal. At the same time, the Senate has confirmed White House economic advisor Stephen Miran as a member of the Fed Board.
The accusations against Cook, along with the nomination of individuals closely tied to the government, could undermine the Fed's independence. The Fed plays a crucial role in formulating cryptocurrency policy.
The Trump team is seeking to remove Cook, who was appointed during the Biden administration, to strengthen control over the Fed. On August 25, the White House's X platform page published a letter from Trump firing Cook, accusing her of making false statements in one or more mortgage agreements.
Cook has denied these allegations and refused to resign. Her legal team stated that the accusations are politically motivated. The White House is "cobbling together new reasons to justify its overreach." Cook herself called the move "unprecedented and illegal."
On Monday, a Washington appeals court blocked the White House from removing Cook from her position at the Fed, allowing her to continue serving during the case's proceedings.
This morning, economist and Chair of the Council of Economic Advisors Stephen Miran, who has previously expressed support for cryptocurrencies, was confirmed by the Senate.
His term is temporary—ending in January 2026—but Stephen Miran declined to commit to whether he would resign from his White House advisor position if his term were extended beyond January 31.
This has raised concerns among Democratic lawmakers that the Fed and its monetary policy agenda will be more influenced by Trump's political goals.
According to Aaron Brogan, founder of Brogan Law and a lawyer focused on the crypto space, "The Fed has immense power over banks, and banks ultimately become the de facto regulators of the crypto industry by deciding who can access financial services."
The politicization of the Fed remains an unknown territory. When asked about the impact of reduced Fed independence on U.S. monetary policy, Aaron Brogan stated, "No one knows."
As Washington lawmakers battle over the central bank's future, the cryptocurrency market is preparing for tomorrow's Fed meeting. The market widely expects a rate cut.
According to Kevin Rusher, founder of the Real World Assets (RWA) lending ecosystem RAAC, "Market sentiment is tense."
He anticipates that liquidity will flow into alternative yield-generating investments such as decentralized finance (DeFi) and RWA.
According to Alice Liu, head of research at CoinMarketCap, Layer 1 projects with high beta coefficients, such as Ethereum (ETH) and Solana (SOL), are particularly sensitive to changes in Fed interest rates.
"These assets trade similarly to growth tech stocks—more influenced by liquidity and risk appetite than Bitcoin (BTC). In particular, a rate cut could trigger more funds flowing into risk assets, and investors may allocate more funds to the 'digital oil' concept of ETH or the growth prospects of SOL," Alice Liu stated.
Alice Liu noted that DeFi tokens are "relatively more attractive" when interest rates decline. This helps boost the performance of tokens related to lending and decentralized exchanges (DEX). Bitcoin remains a mainstream crypto asset with lower sensitivity to interest rate changes, but it can still experience volatility during significant policy shifts and liquidity turning points.
According to the Kobeissi Letter, "When the Fed cuts rates within 2% of historical highs, the S&P 500 typically performs strongly." While short-term results vary, in the past 20 occurrences, the S&P 500 has risen one year later.
The Kobeissi Letter expects this to be the case again. "Short-term volatility will intensify, but long-term asset holders will feast."
"Gold and Bitcoin have already anticipated this. The current straight-up trend in these asset classes reflects the upcoming trend. Gold and Bitcoin understand that further rate cuts in an already hot environment will only push asset prices higher. Now is an excellent time to hold assets long-term."
The political struggle at the Fed remains unresolved, but regardless of who holds power, low interest rates are a comfort to traders.
Related: ARK Invest's bullish position approaches $130 million, with a recent increase of $8.2 million
Original article: “Cryptocurrency Markets Prepare for Fed Policy Shift, Board Personnel Turmoil Increases Policy Uncertainty”
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