Recently, the whole market has been watching the Fed’s moves, and the December 11 FOMC meeting is almost certain to bring a rate cut. But a lot of people don’t actually understand—how exactly does a rate cut make crypto prices soar?

**First, what exactly is a rate cut?**

Simply put, it means the Fed lowers the benchmark interest rate, which is currently in the 4.5%-4.75% range. Usually, each cut is 0.25% (25 basis points); if they’re in a hurry, they might cut by 50 points or even more.

The key is that it triggers a chain reaction: the cost of borrowing drops → companies are more willing to expand, people dare to take out loans and spend → banks are more eager to lend → there’s more money circulating in the market → stock valuations go up (because the discount rate drops) → capital flows out of “safe” assets like Treasuries and into high-risk bets like tech stocks, crypto, and gold → the dollar weakens, which in turn pushes up assets like Bitcoin that are priced in USD.

In plain English? **A rate cut is basically opening the floodgates + bringing back risk appetite, kicking off a party for risk assets.**

**But 2025 is a bit different this time**

(This section was cut off in the original, but it’s clear the author wants to highlight the unique nature of this rate cut cycle.)

In the past, rate-cutting cycles usually came with an economic recession, but this time the Fed is acting early, even though inflation isn’t fully tamed and employment data is still decent. The Fed is moving cautiously, walking a tightrope between the data and market expectations at every step.

**What does history tell us?**

Looking back at past rate-cut cycles, the patterns are actually pretty clear:
- The stock market usually rallies first (especially tech stocks)
- Gold benefits from lower real interest rates
- Crypto? As long as there’s no liquidity crisis, it basically surges hard

Of course, the devil is always in the details. In the early stages of rate cuts, the market might still be digesting the “why are they cutting?” question; the real rally often comes in the mid-to-late stages of the easing cycle.

**How is the market betting on the December 11 meeting?**

According to CME’s FedWatch tool (as of December 7 data):
- Probability of a 25 basis point cut: 85%
- Probability of a direct 50 basis point cut: 14%
- Probability of no change: 1% (basically negligible)

The dot plot will most likely show rates dropping to around 3.25%-3.5% by the end of 2026, meaning there’s still room for another 100-125 basis points of cuts.

Powell will most likely stick to the usual script: “We are transitioning from a restrictive stance to a neutral stance; everything depends on the data, and we won’t pre-commit to a set path.” How will the market interpret this? That’ll depend on the nuances of the wording and the Q&A at the press conference that day.