Fed's Dovish Pivot Fuels Bitcoin Surge via Liquidity and Dollar Weakness

Bitcoin’s recent price surge to $117,000 was catalyzed by the U.S. Federal Reserve’s dovish pivot, with Chair Jerome Powell signaling a potential rate cut at the September 17–18 meeting. Following Powell’s Jackson Hole speech, which hinted at adjusting monetary policy amid cooling inflation and a slowing labor market, Bitcoin gained over 5% within minutes, wiping out $400 million in short liquidations Bitcoin Gets A Price Boost From Fed Chair Jerome …^[1]. The move pushed the total crypto market cap to $4.1 trillion, with altcoins like Ethereum and BNB also surging. The CME Group’s FedWatch Tool indicated an 89% probability of a 25-basis-point cut, while the Fed’s updated dot plot suggested further easing ahead Fed’s Dovish Turn: How It Boosted Bitcoin to $117K^[2].

Historical precedents underscore the link between Fed policy and crypto markets. During the 2020 pandemic-era rate cuts, Bitcoin rebounded from a $4,000 low to over $28,000 by year-end, fueled by liquidity injections and a weakened dollar. Similarly, the 2019 rate cuts initially saw muted reactions but later supported a broader risk-on environment Is Bitcoin Price Set For Next Rally? - Forbes^[3]. Analysts argue that Bitcoin benefits from dovish policies through three mechanisms: increased liquidity, dollar depreciation, and a shift in capital toward risk assets. The current Fed pivot aligns with these dynamics, as lower Treasury yields and reduced borrowing costs incentivize investors to seek higher returns in assets like crypto Federal Reserve Cuts Rates: What Does This Mean for Crypto?^[4].

The potential appointment of a dovish successor to Powell has emerged as a speculative catalyst for Bitcoin’s next phase. Galaxy Digital CEO Mike Novogratz warned that a dovish Fed chair could trigger a “blow-off top” for Bitcoin, potentially pushing it to $200,000. “If the Fed cuts aggressively and loses independence, Bitcoin becomes a whole new conversation,” he stated, though he emphasized the risks to the U.S. economy from such a scenario Mike Novogratz Predicts 'Biggest Bull Catalyst' For Bitcoin^[5]. President Trump’s shortlist for the next Fed chair—Kevin Hassett, Christopher Waller, and Kevin Warsh—includes candidates with varying dovish leanings, though Waller had already advocated for July cuts. Market participants remain cautious, as Novogratz noted the market may not fully price in Trump’s potential “crazy” moves until they materialize Bitcoin’s ‘biggest bull catalyst’ may be the next Fed chair pick: …^[6].

Institutional flows and macroeconomic factors further amplify Bitcoin’s exposure to Fed policy. Spot Bitcoin ETFs have seen $150 million in net inflows since Powell’s speech, with BlackRock’s IBIT leading at $20 billion year-to-date. The weakening dollar, now at a 10-year yield of 4.255%, has also supported risk assets. However, challenges persist, including potential volatility from conflicting economic data and regulatory headwinds. A hotter-than-expected August PCE inflation report could test Bitcoin’s resilience, while delayed cuts might stall momentum Fed Cuts Rate in 'Risk Management' Move as Bitcoin Eyes^[7].

Looking ahead, the interplay between Fed policy and crypto markets hinges on the pace of rate cuts and the next chair’s stance. While the immediate 25-basis-point cut in September was largely priced in, the updated dot plot suggests another 50 basis points of easing by year-end. This trajectory could fuel a sustained Bitcoin rally, particularly if ETF inflows continue and risk appetite remains robust. As Novogratz noted, “The Fed’s cutting when they shouldn’t be, and you put in a massive dove—it becomes a whole new conversation.” Yet, investors must balance optimism with caution, as macroeconomic uncertainties and regulatory shifts could disrupt the bullish narrative Will Fed Rate Cuts Trigger a Bitcoin Rally in 2025? Here’s What ...^[8].