By Key Points
- A Fed rate cut in September 2025 is over 90% likely.
- Historical data links rate cuts to recessions, not recoveries.
- Short-term crypto rallies may mask deeper economic issues.
- Experts warn of a severe downturn after the initial bullish hype.
The idea of a Fed rate cut usually gets investors excited. Cheaper borrowing, easier access to capital, and more room for risk-taking seem like good news, especially for crypto. But this excitement may be based on false hope.
Recent reports suggest there’s over a 90% chance that the Federal Reserve will cut interest rates in September 2025. Bitcoin and other risk assets have already started to rally. But history paints a different picture.
Chart: Fed rate cuts and recessions. Source: WSJ – Techtoken
In the past, major rate cuts were often followed by recessions. Think 2001, 2008, and 2020. These weren’t periods of strong economic growth; they were the start of major downturns.
Henrik Zeberg, Head Macro Economist at Swissblock, believes we’re in a similar spot today. He says the Fed’s pivot is not a proactive move, but a reaction to an economy that’s already slowing down.
“The Fed is not acting to avoid a slowdown; it’s reacting to one that’s already here,” Zeberg explained.
If rate cuts supposedly boost lending why do the gray bars( recessions) show up after the Fed cuts rates? pic.twitter.com/tuLIbNW9w5
— John Smith.USD 🏴☠️ (@cherrygarciafan) August 3, 2025
He points to signs like weakening labor data as early warnings of a recession already in progress.
Crypto Rally May Be Short-Lived Amid Economic Weakness
Yes, crypto may benefit in the short term from a Fed rate cut. Lower rates often push investors toward riskier assets. Bitcoin, Ethereum, and altcoins tend to rise when interest rates fall.
Tech Stocks are outperforming the S&P 500 by the largest margin since the peak of the Dot Com Bubble 🚨🚨 pic.twitter.com/zaHh8RNHL5
— Barchart (@Barchart) August 7, 2025
But this rally could be misleading.
The S&P 500 tech sector is now outperforming the broader index by a wide margin, the largest since the Dot-Com bubble. AI hype, easy money, and bullish sentiment are pushing valuations sky-high.
S&P 500 Technology Sector. Source: BarChart – Techtoken
Guilherme Tavares, CEO of i3 Invest, believes this is unsustainable. He warns that long-term investors might be walking into a trap.
“These rallies aren’t based on fundamentals,” Tavares said. “They’re based on hype, and hype fades fast.”
My man, if you’re a long-term buy-and-hold here, I’ve got to admit—you have balls. pic.twitter.com/esjKqytZAr
— Guilherme Tavares (@i3_invest) August 6, 2025
Henrik Zeberg echoed this view, calling the current optimism “end-of-cycle euphoria.” In his opinion, the market isn’t starting a new cycle—it’s finishing the current one.
“This is the last push before the fall,” he warned. “Rate cuts may drive a melt-up, but it won’t last.”
This theory also resonates with recent coverage on liquidity issues in the crypto market. You can read more about that in our piece on Bitcoin and Ripple Liquidity Pressure.
Foreword: August 2025 Zeberg Letter
“The Illusion of strong Labor Market was shattered by Friday’s NFP Report. It is time to prepare”
(Henrik Zeberg, August 1st)Get the FULL REPORT BY SIGNING UP HERE:https://t.co/HPVoam0nTs
Here are the forewords:
A Turning Point in Labor…
— Henrik Zeberg (@HenrikZeberg) August 5, 2025
Liquidity Isn’t a Cure-All for a Weak Economy
Here’s the uncomfortable truth: cheap money only works when people want to spend or borrow.
If businesses are already laying off workers or scaling back plans, lower interest rates won’t encourage them to take on more debt. The same goes for consumers; if people are losing jobs or tightening budgets, they won’t be applying for loans or buying big-ticket items.
That’s why many experts are warning that liquidity alone won’t stop a downturn.
Even with more money flowing through the system, economic fundamentals like consumer spending, job growth, and corporate earnings must also be strong. If they’re not, the market is just inflating itself further into a bubble.
“Rate cuts can delay the crash, but they can’t prevent it,” Zeberg noted. “They might even make it worse.”
He warns that this temporary high could set up crypto and tech stocks for an even sharper crash later on. And if his forecast holds, this downturn could rival the crashes of the Great Depression era.
This warning adds weight to ongoing regulatory uncertainties in the space as well, like the Ripple XRP Lawsuit that continues to influence investor sentiment.
What This Means for Crypto Traders
If you’re a crypto investor hoping for a bull market from a Fed rate cut, you may want to think twice.
Yes, Bitcoin and altcoins could rise in the short term. But if the broader economy is heading into a recession, as historical patterns suggest, crypto will likely feel the impact too.
Crypto is still considered a risk-on asset, meaning it performs well when markets are confident, and poorly when fear rises. A Fed pivot may trigger a mini bull run, but if it’s followed by layoffs, falling earnings, and shrinking GDP, those gains could quickly vanish.
Smart investors are watching both sides of the coin. They’re not just hoping for a rally; they’re preparing for a potential storm.
“This is not the beginning of a new bull market,” Zeberg says. “It’s the final phase of the current one. And when the music stops, it may be louder than anything we’ve heard since the 1930s.”
So while a Fed rate cut might sound like good news today, it could be the warning sign of something much bigger and far more dangerous on the horizon.
Sentiment Shift Already Happening in the Crypto Sector
Beyond just macroeconomic shifts, signs of investor caution are already visible in crypto.
Just this week, Binance announced the delisting of MemeFi, a move that shook up speculative token traders. These actions signal that platforms are becoming stricter with listings, possibly in preparation for rougher market conditions.
Meanwhile, OpenAI’s reported $500 billion market cap ambition has pulled attention back to AI investments, possibly draining liquidity away from crypto in the short term.
On the community side, trust continues to be tested. Blockchain sleuth ZachXBT accused Kaito of deceptive practices, further illustrating how investor sentiment is shifting toward skepticism.
Put together, these headlines show that while crypto is still alive and kicking, confidence is starting to waver, and the Fed’s decision could be the tipping point.
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