The market narrative in crypto is being reshaped by expectations of a Fed rate cut at next week’s FOMC meeting.

The latest market pricing shows a 97.8% probability of a 25 basis point rate cut—what does this number mean? When the floodgates of liquidity open in the traditional financial system, capital will look for new destinations.

Breaking down the logic chain: A rate cut directly lowers the risk-free yield, reducing the cost of capital. As bank deposit returns shrink, demand will shift toward risk assets. The crypto narrative built over the past few years—whether it’s the improvement of institutional-grade infrastructure or the opening of compliant channels like spot Bitcoin ETFs—has been increasing the appeal of this asset class in the eyes of professional investors.

A deeper impact lies in the exchange rate. Rate-cut cycles are typically accompanied by a weaker US Dollar Index, and expectations of fiat currency depreciation will drive capital toward hard assets. For digital assets like Bitcoin, with a fixed total supply, their hedging properties will be repriced in this environment.

Signals at the institutional level are equally clear. Asset management giants like BlackRock and Fidelity, each managing trillions, completed their Bitcoin ETF deployments as early as last year. As policy shifts toward easing, their capacity to increase allocations will open up—no one stands on the sidelines when liquidity is abundant.

Data also confirms these expectations:
- Bitcoin just broke through the $120,000 psychological mark, entering a new technical price range
- Historical data shows Bitcoin’s average Q4 gain is close to 80% (though past performance is not indicative of future results)
- Net inflows into spot ETFs hit a seven-week high, indicating that off-exchange funds are cautiously entering the market

Of course, the market is never short on variables. The actual effect after the rate cut, regulatory policy swings, and unexpected macroeconomic changes—any one of these factors could rewrite the script. But based on current probability distributions, this rate-cutting cycle is indeed creating a more favorable environment for risk assets.

This could be the most important macro variable to track in the crypto market for the remainder of the year.