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Fed Rate Cuts: Who Wins - Bitcoin, Gold, or US Stocks?
Intermediate
2025-09-17 | 15m
The financial markets are holding their breath as the Federal Reserve's September 2025 policy meeting approaches. The widespread sentiment among investors appears to be "waiting until after the Fed decision before making any moves". This cautious stance comes as
Bitcoin continues to trade within a relatively narrow range between $114,000 and $117,000, demonstrating a lack of clear directional momentum. The digital currency market, alongside traditional assets such as gold and equities, is keenly awaiting the Federal Open Market Committee (FOMC) decision, where markets widely anticipate a 25-basis-point cut that would lower rates from 4.5% to 4.25%.
This collective anticipation stems from historical precedent indicating that when the Fed embarks on a rate-cutting cycle, various asset classes typically experience significant rallies. The critical question for investors is: which asset will outperform in this new environment? According to market analysts, if the Fed implements a 25-basis-point cut, Bitcoin might resume its slow upward trend. However, if there's an unexpected 50-basis-point cut, US stocks, cryptocurrencies, and gold could all experience frenzied activity.
Table: Historical Asset Performance During Fed Rate Cut Cycles
| Asset Class | Preventive Cuts | Recession Cuts | Panic Cuts |
| US Stocks | Strong gains | Initial decline then recovery | V-shaped recovery |
| Gold | Moderate gains | Strong gains | Strong gains |
| Bitcoin | Not available | Not available | Extreme gains |
| Bonds | Moderate gains | Strong gains | Exceptional gains |
Understanding Rate Cycle Context
Historical analysis reveals that not all Federal Reserve
rate cut cycles are created equal. Throughout the past three decades, we can identify distinct patterns of monetary easing, each with different implications for asset prices:
Preventive Rate Cuts (1995 Model)
In 1995, then-Fed Chair Alan Greenspan faced what might be called a "happy dilemma": the economy was growing robustly but showed signs of potential overheating. The response was a
preemptive series of rate cuts totaling 75 basis points, from 6% to 5.25%. The outcome was remarkably positive - U.S. stocks embarked on their most spectacular five-year bull run of the internet era, with the NASDAQ index multiplying fivefold over this period. This episode is often cited as a textbook example of a
successful economic soft landing.
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Recession Rate Cuts (2007 Model)
As depicted in the film "The Big Short," the seeds of the subprime mortgage crisis were already sown when the Fed began cutting rates from 5.25% in September 2007. Initially, markets continued to rally, with the S&P 500 hitting record highs. However, the subsequent unraveling of the financial system forced the Fed to slash rates by 500 basis points over 15 months, ultimately failing to prevent the
most severe economic recession since the Great Depression.
Panic Rate Cuts (2020 Model)
When the COVID-19 pandemic unexpectedly struck, the Federal Reserve responded with unprecedented urgency. In just ten days between March 3 and March 15, 2020, rates were slashed from 1.75% directly to 0.25%. This was accompanied by the announcement of "
unlimited quantitative easing," which expanded the Fed's balance sheet from $4 trillion to $9 trillion. This massive liquidity injection created what might be considered the most surreal episode in financial history: while the real economy ground to a halt, financial assets embarked on a spectacular rally.
Based on current economic indicators, 2025 appears most similar to the 1995 preventive rate cut scenario. The unemployment rate stands at a reasonable 4.1%, GDP continues to grow without signs of recession, and inflation has receded to approximately 3% from its 2022 peak of 9%. However, several concerning factors distinguish the current environment: U.S. stocks are already at historic highs when the cuts are beginning (the S&P 500 has gained over 20% year-to-date), and the U.S. government debt-to-GDP ratio has reached 123%, significantly higher than the 64% level in 2007, which may constrain fiscal stimulus options.
Crypto Market's Rate Cut Narrative
The cryptocurrency market has demonstrated varied responses to previous Fed rate cut cycles, providing valuable insights for what might unfold in the current environment.
The 2019 Cycle: Much Noise, Little Action
On July 31, 2019, the Fed implemented its first rate cut in a decade. Bitcoin appeared to have
anticipated this move in advance, rallying from $9,000 in late June to approximately $13,000 by mid-July. However, when the cut actuallymaterialized, Bitcoin surprised market participants by failing to sustain its gains. Instead, it entered a downward trajectory, declining to about $7,000 by December 2019.
This counterintuitive response can be attributed to several factors: the relatively modest scale of rate cuts (75 basis points total), the crypto market's fragile confidence following the severe 2018 bear market, and most importantly, the fact that
traditional institutions remained on the sidelines, with the majority of liquidity flowing toward traditional equities instead.
The 2020 Cycle: The 312 Crash and Spectacular Rebound
In early March 2020, markets already sensed impending trouble. When the Fed implemented an emergency 50-basis-point cut on March 3, Bitcoin failed to rally and instead declined from $8,800 to $8,400. The market logic was straightforward:
emergency cuts signified serious economic problems, prompting investors to flee risk assets.
The following week witnessed one of the darkest chapters in crypto history—now memorialized as the "
312 crash." On March 12, Bitcoin plummeted from $8,000 to $3,800, a breathtaking 50% decline within 24 hours. Ethereum experienced even more severe losses, crashing from $240 to $90. This collapse was part of a broader global liquidity crisis where all assets—stocks, gold, and even typically stable government bonds—were being sold indiscriminately as investors rushed to hold cash.
Bitcoin 312 Black Swan Event Chart. Source: Bitsgap
The turnaround came on March 15 when the Fed announced rate reductions to 0-0.25% alongside a $700 billion quantitative easing program. On March 23, the central bank unveiled its "unlimited QE" strategy. Bitcoin bottomed at $3,800 and then embarked on a historic rally that would ultimately take it to $69,000 by November 2021—a staggering 1,715% increase in just 20 months.
The dramatic difference between the 2019 and 2020 cycles ultimately came down to the
scale of liquidity injection. The 2020 response included rate cuts to zero plus unlimited quantitative easing, which expanded the Fed's balance sheet from $4 trillion to $9 trillion—flooding markets with $5 trillion in additional liquidity. Even if only 1% of this liquidity found its way into cryptocurrency markets, it represented $50 billion, equivalent to about one-third of the entire crypto market capitalization at the beginning of 2020.
2025: Which Script Will Follow?
Based on current market pricing, the expected 25-basis-point cut is viewed as merely the beginning. If economic data continues to evolve along current trajectories, the entire rate cut cycle (over the next 12-18 months) could total 100-150 basis points, ultimately bringing the federal funds rate to somewhere between 3.0-3.5%.
This places the expected magnitude of cuts
somewhere between the 2019 and 2020 cycles. Market positioning is also intermediate: Bitcoin is trading near historic highs around $115,000, meaning it doesn't have the same upside potential as in March 2020, but market confidence is substantially stronger than in 2019. Institutional participation has also crossed a watershed moment with the approval of Bitcoin ETFs, providing standardized investment vehicles that didn't exist in previous cycles.
Traditional Asset Performance During Rate Cuts
Rate cuts influence not only cryptocurrency markets but also traditional asset classes, and understanding these historical patterns provides essential context for cryptocurrency investors.
US Stocks: Not All Rate Cuts Bring Bull Markets
Historical data indicate that the S&P 500 typically delivers
positive returns in the 12-24 months following the Fed's first rate cut or the resumption of cutting cycles. However, this pattern comes with important nuances. If we exclude the "black swan" events of the tech bubble (2001) and global financial crisis (2007), the average returns following rate cuts would be significantly higher.
This evidence underscores a critical insight: the
performance of U.S. stocks following rate cuts depends fundamentally on the reason behind the monetary easing. Preventive cuts like those in 1995 produce broadly positive outcomes, while relief cuts like those in 2007 may eventually stabilize markets but only after substantial interim losses.
Sector performance also varies considerably across different rate cut environments. According to research, defensive sectors tend to outperform during rate cut cycles. Specifically, during cycles where the economy is relatively strong and the Fed implements only one or two cuts, cyclical sectors like financials and industrials tend to outperform. However, when the economy is weaker and requires four or more substantial cuts, investors favor defensive sectors, with healthcare and consumer staples delivering median returns of 20.3% and 19.9% respectively, while technology stocks manage only 1.6%.
According to Nomura Securities research, three months after a 50-basis-point cut, the S&P 500 typically shows little change, but the small-cap Russell 2000 index averages a 5.6% gain. This makes intuitive sense: smaller companies are generally more sensitive to interest rates due to their higher borrowing costs, so they benefit disproportionately from rate cuts. Moreover, small-cap outperformance often signals improving risk appetite in markets.
Bond Markets: Steady but Potentially Unexciting
Bonds are typically the most predictable assets during rate cut cycles. When the Fed cuts rates, bond yields generally fall, and bond prices rise, with few surprises. Analysis indicates that the magnitude of decline in 10-year Treasury yields has been relatively consistent across cycles: 129 basis points in 2001-2003, 170 basis points in 2007-2008, and 261 basis points during the unusual circumstances of 2019-2020.
The exceptionally large decline during 2019-2020 resulted not only from rate cuts to zero but also from the "unlimited QE" program that involved direct Fed purchases of bonds, artificially suppressing yields. Based on the 2001 and 2007 experiences, the 10-year Treasury yield could potentially decline by an additional 35-75 basis points from current levels.
For cryptocurrency investors accustomed to the possibility of doubling their money, bond returns may appear modest. However, bond yields serve a crucial function as an anchor for the cost of capital across risk assets. If Treasury yields collapse while corporate bond yields remain elevated or rise, it typically signals a flight to safety, during which risk assets like Bitcoin often face selling pressure.
Gold: A Consistent Winner in Rate Cut Cycles
Gold may be the asset that best "understands" the Fed's intentions. Over recent decades, gold has rarely disappointed investors during rate cut cycles. During the three most recent cutting cycles, gold delivered impressive returns: 31% over 24 months in the 2001 cycle, 39% in the 2007 cycle, and 26% in the 2019 cycle, averaging approximately 32% over two years. While these returns may seem modest compared to Bitcoin's potential, they are remarkably consistent—all three cycles produced positive returns without exception.
In the current cycle, gold has already gained 41%, outperforming historical benchmarks for similar periods in previous cycles. This exceptional strength derives from three primary factors:
record central bank purchases (over 1,000 tons in 2024 alone as countries diversify away from dollar reserves),
elevated geopolitical risks in Ukraine and the Middle East that have created a "war premium," and
inflation hedging demand amid concerns about unprecedented U.S. debt levels and annual deficits of $2 trillion.
Conclusion
As we approach September 2025, we find ourselves at a fascinating juncture in monetary and market cycles. The Fed's rate cut cycle has been underway for approximately a year, proceeding at a measured pace. Bitcoin trades around $115,000—not exceptionally low but far from previous cycle highs. Market sentiment reflects a blend of greed without frenzy, caution without panic. This intermediate state proves most challenging for forecasting and most demanding ofinvestor patience.
Historical experience suggests that the
later stages of rate cut cycles often produce the most dramatic movements. In 1995, the final two rate cuts preceded the Internet stock boom. In 2020, Bitcoin's true takeoff occurred approximately six months after the initial cuts. If history rhymes, the next 6-12 months may represent a critical window for asset performance.
However, history also reminds us that each cycle brings unexpected developments. Perhaps this time, the surprise will be AI-driven productivity explosions that eliminate inflation concerns, allowing the Fed to cut rates aggressively without constraints. Alternatively, geopolitical conflicts could escalate, or a new financial crisis might emerge.
The only certainty is change itself. The
dollar-dominated monetary system is evolving, methods of value storage are transforming, and the velocity of wealth transfer is accelerating. Cryptocurrencies represent not merely an investment asset class but a microcosm of this transformative era.
Rather than fixating on whether Bitcoin will reach $150,000 or $200,000, investors might better ask themselves: Am I prepared for the changes unfolding in this new financial landscape? For those who can answer affirmatively, the current rate cut cycle may represent not an endpoint but a beginning—with the true spectacle yet to come.
Based on the historical patterns and current market conditions, a diversified approach appears most prudent.
Gold offers stability and consistent performance during rate cut cycles, particularly valuable during economic uncertainty.
US stocks, especially those in sectors that historically outperform during preventive rate cuts, provide growth potential.
Bitcoin and cryptocurrencies offer substantial upside potential but with higher volatility, making them suitable for risk-tolerant investors.
As always, investors should consider their risk tolerance, investment horizon, and overall portfolio composition when making decisions in this changing rate environment. The specific outcome for each asset class will depend not only on Fed actions but also on economic developments, geopolitical events, and market sentiment in the coming months.
Reference:
AICoin. (2025, September 11).
Huobi Growth Institute | Crypto market macro report: Latest outlook on the crypto market under the Federal Reserve's rate cut expectations.
https://www.aicoin.com/zh-Hant/article/485698
Cointelegraph. (2025, September 16).
Bitcoin daily drop hits 2%, "classic" BTC price action precedes FOMC.
https://tw.cointelegraph.com/news/bitcoin-daily-dip-hits-2-classic-btc-price-action-precedes-fomc
Deep Wave TechFlow. (2025, September 15).
Review of the Federal Reserve's rate cut cycle: Where will Bitcoin, stocks, and gold go?
https://www.techflowpost.com/article/detail_28166.html
The Blockbeats. (2025, September 16).
Analyst: Federal Reserve rate cut of 25 basis points may restore Bitcoin's slow upward trend.
https://www.theblockbeats.info/flash/312469
The Blockbeats. (2025, September 16).
If the Federal Reserve starts cutting interest rates, who will win between Bitcoin, gold, and U.S. stocks?
https://www.theblockbeats.info/news/59648
CoinCatch Team
Disclaimer:
Digital asset prices carry high market risk and price volatility. You should carefully consider your investment experience, financial situation, investment objectives, and risk tolerance. CoinCatch is not responsible for any losses that may occur. This article should not be considered financial advice.
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