The Federal Reserve is widely expected to cut interest rates today, September 17, 2025, a move that could send ripples through the cryptocurrency market. Analysts predict a 0.25% cut, or 25 basis points, marking the first easing cycle in 2025 after nine months of stable rates. This decision follows concerns about cooling job growth and persistent inflation. While a 25 bps cut is largely anticipated, some believe a larger cut was needed to provide significant upward momentum for risk assets, including crypto.

Historically, Fed rate cuts have been bullish for Bitcoin and altcoins. Lower interest rates reduce the appeal of bonds and savings products, potentially boosting flows into risk-on assets like cryptocurrencies. This is because the perceived risk of crypto investing compares more favorably with the lower perceived reward of cash or fixed-income investments when interest rates are low. Investors may also turn to crypto as a hedge against volatility in the U.S. economy, as rate cuts can weaken the U.S. dollar and assets denominated in it.

The Fed's actions inject liquidity into the financial system, reducing borrowing costs and incentivizing capital to flow into higher-risk, higher-return assets. Cryptocurrencies can be amplified by their role as speculative investments and hedges against fiat devaluation. The anticipated rate cut is expected to weaken the U.S. dollar, a critical tailwind for Bitcoin, which has historically shown a strong inverse correlation with the Dollar Index.

However, some analysts believe that any post-cut crypto rally has already been priced in. The markets have been anticipating this move, and it remains to be seen if the actual cut will trigger further gains. Some analysts had warned that a 25bps cut was already priced in and only a larger 50bps surprise would have provided significant upward momentum for risk assets, including crypto.

Past Fed actions offer some insights. The Fed's 2019 rate cuts coincided with a modest Bitcoin recovery. The more dramatic 2020 emergency rate cuts, triggered by the pandemic, demonstrated the full force of risk-on sentiment. Bitcoin plummeted initially but then surged as the Fed's zero-rate policy and quantitative easing flooded markets with liquidity.

The expected rate cut comes amid political tensions surrounding the Fed. The Trump administration is attempting to oust Fed governor Lisa Cook while appointing pro-crypto economist Stephen Miran. This political turmoil could make monetary policy more volatile and politically driven, potentially impacting crypto-related policy.

Different cryptocurrencies may react differently to the rate cut. ETH, SOL, and DeFi tokens are seen as most sensitive to rate cuts. Bitcoin remains the "quality crypto" – less rate-sensitive but still reactive to big policy surprises. DeFi tokens become relatively more attractive when interest rates fall, boosting tokens tied to lending and DEX activity.

Going forward, investors should balance optimism with caution, diversifying portfolios and monitoring Fed guidance to navigate volatility and policy shifts. The Fed's statement and any hints about future policy will be closely scrutinized. The predicted depth of the cuts expected in 2025 ranges from 50 basis points to 100 basis points.