Bitcoin Optimists Rely on Federal Reserve Rate Cuts to Lower Bond Yields, Yet Risks Persist

Key Insights:

Rate cuts by the Federal Reserve are anticipated to decrease interest rates by 25 basis points on September 17, 2025.
Rising inflation and other fiscal responsibilities may counteract the benefits of lower rates for long-term bonds.

On September 17, the U.S. Federal Reserve is widely perceived to enact a 25 basis point cut to interest rates, reducing the benchmark to 4.00%-4.25%. Analysts predict this easing trend will continue, potentially reaching around 3% within the next year. The fed funds futures market is now reflecting a decline in rates to below 3% by the close of 2026.

Bitcoin (BTC) advocates are hopeful that forthcoming rate cuts will significantly lower Treasury yields, which would stimulate risk-tolerance in both economic and market conditions. However, conditions may prove more intricate, leading to unexpected outcomes.

Ongoing Market Dynamics

Although the expected cuts are meant to alleviate pressures on shorter-term Treasury yields, longer-term yields may remain high because of persistent inflation and fiscal concerns. The U.S. government is expected to ramp up Treasury bill issuance to back the recent tax cut plans and defense expenditures. According to a report by the Congressional Budget Office, these fiscal strategies could add over $2.4 trillion to deficits over the next decade, heightening debt up by $3 trillion or nearly $5 trillion if permanent.

This increase in debt could potentially exert downward pressure on bond prices, leading to a rise in yields. Analysts from T. Rowe Price have stated that issuing more notes and bonds will likely increase long-term yields.

Implications for Bitcoin

In the past, BTC entailed a significant rally from $70,000 to over $100,000 between October and December 2024, driven primarily by optimistic regulatory developments and rising corporate adoption of digital assets. However, the loss of supportive narratives may indicate a challenging period ahead, particularly if yield rates trend upward due to inflation and fiscal concerns.