Crypto
Prediction: When the Federal Reserve Starts Cutting Rates, This Cryptocurrency Will Be a Massive Winner | The Motley Fool
With interest rate cuts on the horizon, Bitcoin’s prospects become all the more alluring.
After the steepest interest rate hikes in history, the Federal Reserve recently signaled it might soon adjust policy. Markets expect a 25 basis point cut at the upcoming September meeting, with more cuts likely to follow into 2025.
Several assets are likely poised to benefit from these adjustments, but one in particular is positioned best in this evolving landscape. Here’s why Bitcoin (BTC 0.38%) is the one asset investors should keep an eye on as the Fed turns from hawkish to dovish.
Image source: Getty Images.
The current landscape
Although people celebrated Federal Reserve Chair Jerome Powell’s announcement that rate cuts will be coming, there’s reason to be less optimistic. Based on recent data and developments, the decision to cut rates seems to have been driven by concerns like the recent yen carry trade and the Bureau of Labor Statistics’ revision, which revealed a significant overcounting of 818,000 jobs. These developments stoked fears of fragility in the global economy and a weakening labor market, ultimately prompting the Fed to consider easing its stance.
However, the inflation rate is still 2.9%, well above the Federal Reserve’s long-stated 2% target, and one Powell had previously declared non-negotiable. Additionally, the U.S. economy remains relatively robust. Since the COVID-19 pandemic, the U.S. has only seen two quarters of negative real gross domestic product (GDP) growth, a key metric for measuring economic productivity. Furthermore, the latest third-quarter 2024 real GDP estimate is a solid 2%. This suggests the economy isn’t struggling under overly restrictive monetary policy.
It isn’t hard to see how rate cuts could cause inflation to tick up again in this scenario. Lowering interest rates encourages borrowing and spending, which boosts demand for goods and services. This increased demand in an economy that appears healthy exerts additional upward pressure on prices and further complicates the Federal Reserve’s efforts to maintain price stability.
Bitcoin: The premier asset
While increased liquidity and lower interest rates often lead to greater growth in equities as investors are incentivized to take on more risk, in this environment, I’d prefer a different asset: Bitcoin.
Considered the premier risk-on asset, Bitcoin has proven it thrives when there’s more liquidity in the market. From when the Fed slashed rates to near zero in February 2020 to February 2022, when rate hikes resumed, Bitcoin saw a staggering 375% jump. Its performance in that low-rate environment underscores its potential as rates begin to fall again.
But the primary reason Bitcoin is so attractive today isn’t just about benefiting from increased liquidity; it’s about safeguarding against inflation. In an economy that doesn’t appear to be struggling, the likelihood of inflation returning is significant. After the U.S. dollar lost 20% of its value over the last five years, I have no interest in returning to that scenario.
Fortunately, Bitcoin offers a solution. With a fixed supply of 21 million coins, of which 19.6 million are already in circulation, Bitcoin offers a unique hedge against central bank malpractice and government intervention. Its decentralized nature means it isn’t controlled by any single entity, and its underlying blockchain technology ensures security and transparency. These characteristics make Bitcoin not just a speculative asset, but a robust store of value in an uncertain economic landscape.
Final considerations
The Federal Reserve’s rate cuts have been a long time coming and will certainly boost the economy. But that doesn’t necessarily mean there won’t be potential consequences or other issues that arise.
If economic growth can somehow be managed with minimal inflation, then kudos to Powell. But with no guarantees, I’d rather put my trust in the most decentralized, secure, and finite asset in existence.
For investors looking to navigate these choppy waters, Bitcoin represents not just a speculative play, but a strategic allocation in a world where traditional assets are increasingly subject to the whims of central banks.
RJ Fulton has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.
WASHINGTON, D.C. — Bernie Moreno’s victory in the Ohio Senate race was a big win for the cryptocurrency industry, which spent more than $40 million supporting his candidacy. Now in office, Moreno said he would support legislation the industry is seeking that would govern how it is regulated.
What You Need To Know
- Sen. Bernie Moreno said he would support new legislation to govern how the cryptocurrency industry is regulated
- The crypto industry spent tens of millions of dollars to support Moreno in the Ohio Senate race
- Moreno’s support of laws sought by crypto interests is a stark contrast from his Democrat predecessor, former Sen. Sherrod Brown
Moreno has long been involved with the crypto industry. He has a background in blockchain, the same technology used to for cryptocurrency. He previously founded Champ Titles, a digital car titling company that was among the first to use blockchain for digital titles.
The cryptocurrency industry also helped fuel his Senate win. Super PAC Defend American Jobs spent $40.1 million on the race, more than any other outside group. The super PAC is affiliated with Fairshake, another super PAC that is funded by Coinbase, Ripple and other crypto companies.
Moreno’s support of laws sought by crypto interests is a stark contrast from his Democrat predecessor, former Sen. Sherrod Brown.
As Chairman of the Senate Banking Committee, Brown blocked advancing a bill to loosen the regulation of some crypto assets, known as the Financial Innovation and Technology for the 21st Century Act, or FIT 21. The bill would reclassify many kinds of crypto as commodities rather than securities. Rules for commodities, examples of which include oil, wheat or electricity, are generally looser than those for financial securities like stocks or bonds. The bill passed the House last Congress, but remained stalled in the Senate Banking Committee.
Moreno now sits on the Banking Committee, as well as the Senate Committees for Homeland Security and Governmental Affairs; Commerce, Science and Transportation; Budget; and Banking, Housing and Urban Affairs.
“I got the committee assignments I wanted,” Moreno said. “Senator Thune was kind enough to get me on Banking.”
Moreno disagreed with the stance Brown had taken against legislation like FIT 21, countering that the rapidly growing cryptocurrency industry needs better clarification on regulations.
“Crypto is not looking to be deregulated. Crypto is looking to be treated fairly, to have transparent, consistent regulations that treat everybody equally and fairly. That’s what we want,” he said. “Look, at the end of they day, I understand how the technology works and I understand the industry. My opponent had no idea.”
With a new Congress, the House would have to re-introduce and pass another cryptocurrency regulation bill. FIT 21 previously received bipartisan support, with nearly all Republicans and about a third of Democrats voting for it.
Similar legislation would likely move more quickly this Congress, in which Republicans control the House, Senate and White House.
Crypto
Cryptocurrency options in 401(k) plans: Here's what to know to make the most of your workplace retirement plan
The rally in bitcoin and other cryptocurrency prices has generated excitement among some investors, but investment advisors are largely still skeptical that those volatile assets belong in a 401(k) plan or other qualified retirement savings plans.
Crypto was one of the fastest-growing categories of exchange-traded funds in 2024. The most popular of these funds, the iShares Bitcoin Trust ETF (IBIT), has ballooned to over $50 billion in total assets.
Although crypto is a small part of the 401(k) plan market, it could grow substantially in 2025.
President-elect Donald Trump has suggested he will create a strategic reserve of bitcoin for the U.S. and has nominated Paul Atkins, a cryptocurrency advocate, to chair the Securities and Exchange Commission. The SEC’s approval of spot bitcoin and ethereum exchange-traded funds in 2024 was a key change for the industry.
The law covering 401(k) plans requires plan sponsors to act as fiduciaries, or in investors’ best interest, by considering the risk of loss and potential gains of investments. The Labor Department has cautioned fiduciaries to exercise “extreme care” before adding crypto options to a 401(k) plan’s core investments.
Labor Department officials, however, haven’t required fiduciaries to select and monitor all investment options, like those offered through self-directed brokerage windows, according to the Government Accountability Office. Nearly 40% of plans now offer brokerage windows in their 401(k) accounts, according to a 2023 survey by the Plan Sponsor Council of America.
Pros and cons of crypto in a 401(k) plan
Fernando Gutierrez-Juarez | Picture Alliance | Getty Images
Views are mixed about how much crypto to add to retirement savings or if it’s wise to allocate any at all.
Some financial advisors say crypto can work for a 401(k) plan because its movements are unconnected to the stock market and it functions even if a fiat currency is devalued.
“Crypto should be a part of a 401(k) plan because it’s a non-correlated alternative asset class,” said Ivory Johnson, a certified financial planner and founder of Delancey Wealth Management in Washington, D.C.
“With that said, investors need to ensure that they take their risk tolerance and time horizon into account which will define the target allocation,” said Johnson, who is also a member of the CNBC Financial Advisor Council. “The more volatile an asset class is, the less you need of it in the portfolio because you presumably get more bang for your buck.”
Johnson recommends cryptocurrencies range from 2% to 8% of an investor’s portfolio.
Other experts point to volatility and risk as reasons to be conservative.
“People saving for retirement should probably be even more conservative, because adding crypto to a 401(k) plan would significantly increase the risk that your retirement nest egg could suffer a large loss at the wrong time,” said Amy Arnott, a chartered financial analyst and portfolio strategist with Morningstar Research Services.
Morningstar found that since September 2015, bitcoin has been nearly five times as volatile as U.S. stocks, and ether nearly 10 times as volatile. That type of volatility adds a large risk to a portfolio even with a small amount invested.
401(k) contribution limits for 2025
Regardless of what assets are in a 401(k) plan, there are limits to how much you can contribute. For 2025, an employee can contribute up to $23,500 in a 401(k) and other employer-sponsored plans — that’s $500 more than in 2024.
People age 50 or older can make a “catch-up contribution” of up to $7,500. And those age 60 to 63 years old can supersize that, with a catch-up contribution of up to $11,250 for 2025.
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Crypto
Prospects for Improved Relations Between the Cryptocurrency Industry and Banks Under the Trump Administration
With just over two weeks left until Donald Trump takes office, there are prospects that the relationship between the cryptocurrency industry and the banking sector, which has been at odds, could change positively.
According to The Block, a cryptocurrency-focused media outlet, TD Cowen predicts that under the Trump administration, banks may see an improvement in their relationship with the cryptocurrency industry.
Jaret Seiberg and the Washington Research Group stated in a report, “Banks have the responsibility to comply with Anti-Money Laundering (AML) and Bank Secrecy Act (BSA) regulations and manage risks such as liquidity and concentration,” adding, “If the Trump administration takes power, it is inevitable that the relationship between traditional finance and the cryptocurrency industry will change positively.”
However, they also mentioned that some banks may still take a cautious stance. They said, “Some banks may still see risks in increasing relationships with cryptocurrencies,” and “this could be targeted by new banks.” Additionally, stablecoins (assets linked to the value of fiat currency) were highlighted as the cryptocurrency sector that banks would be most interested in, as banks hold cash, making them advantageous for issuing stablecoins.
In the U.S., there has been ongoing conflict between the cryptocurrency industry and the traditional financial sector, particularly banks. There have been conspiracy theories suggesting that banks have implicitly enforced cryptocurrency-related sanctions, known as Operation Chokepoint 2.0. Some cryptocurrency figures have claimed that banks have tried to restrict access to traditional financial services for the cryptocurrency industry.
Brian Armstrong, the founder of Coinbase, commented on Operation Chokepoint 2.0, saying, “It actually happened. Unethical and un-American actions occurred under the Biden administration,” and “We are currently gathering evidence from victims through the Freedom of Information Act (FOIA).”
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