Will A Fed Pivot Rekindle The Bitcoin Bull Run? If Yes, Expect A 'Shift In Institutional Sentiment,' Experts Say

A potential dovish shift by the Federal Reserve, driven by disinflationary pressures stemming from President Donald Trump's tariff policies, could markedly reshape institutional investor sentiment toward cryptocurrencies in the coming quarters.

What Happened: As global trade tensions escalate and economic indicators signal a complex interplay of inflationary and disinflationary forces, the crypto market stands at a pivotal juncture, with Bitcoin BTC/USD and stablecoins poised to benefit from evolving monetary policies and shifting investor priorities.

The U.S. economic landscape has been under strain since Trump's administration introduced tariffs, including a recent 125% tariff retaliation from China, which has disrupted global supply chains and heightened market uncertainty.

Despite this, the crypto market has shown resilience, with Bitcoin maintaining relative stability.

What Experts Are Saying: Ruslan Lienkha, chief of markets at YouHodler, explains that a dovish Fed, characterized by lower interest rates and a more accommodative monetary policy, could catalyze a surge in crypto investments.

"A dovish Federal Reserve… would likely lead to increased capital inflows into risk assets, including cryptocurrencies," Lienkha states, emphasizing that such a policy shift creates a risk-on environment where institutional investors seek higher returns in a low-yield landscape.

Eneko Knorr, CEO of Stabolut, reinforces this view, noting, "A dovish Fed stance amid disinflation could spark renewed institutional interest in cryptocurrencies," as traditional assets like bonds become less appealing, driving investors toward digital assets for growth and diversification.

Tim Delhaes, CEO of Grindery, adds that this shift "could shift institutional sentiment toward crypto, especially as an alternative to low-yield assets," highlighting the appeal of cryptocurrencies in a looser monetary environment.

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The potential for disinflation arises from the broader economic fallout of Trump's tariffs, which have sparked debates over their inflationary versus disinflationary impacts.

Knorr challenges the market's assumption that tariffs are inherently disinflationary, arguing that they initially drive up costs for imported goods, thereby increasing consumer prices.

"Tariffs are, by nature, inflationary—they increase the cost of imported goods, which feeds into consumer prices," he explains.

However, he acknowledges that a prolonged trade war could lead to a recession, which would suppress demand and ultimately lower inflation.

Lienkha aligns with this perspective, noting that "tariffs could indeed have a disinflationary effect if they increase the likelihood of an economic recession," but he cautions that recent inflation data does not yet reflect the tariffs' impact, as it represents prior periods.

He anticipates a moderate inflation increase in the coming months, which could prompt the Fed to maintain elevated rates, keeping pressure on risk assets like Bitcoin in the short term.

Delhaes points to current market conditions like a softening global demand, a strong U.S. dollar, and diversifying supply chains, as factors that could amplify the disinflationary effects of tariffs.

He predicts that if breakeven inflation rates continue to decline, the Fed might pivot to rate cuts as early as the third quarter of 2025, a move that would likely boost appetite for risk assets like Bitcoin.

Knorr elaborates on the long-term mechanics, explaining that in advanced economies like the U.S., tariffs can lead to deflation by creating uncertainty, disrupting supply chains, and undermining both business and consumer confidence.

This, in turn, reduces aggregate demand, particularly if a recession takes hold, leading to price declines over time.

Aurelie Barthere, Principal Research Analyst at Nansen, provides a more granular view of the inflationary dynamics at play, noting that "tariffs are likely to add 15pts to existing tariffs," resulting in supply-side inflation even as demand weakens.

She highlights the Fed's cautious approach, waiting for rising jobless claims before considering rate cuts, amid a significant repricing of economic growth from over 3% at the start of the year to under 1% currently.

Barthere also points to a deflation in equity price-to-earnings ratios, reflecting broader market adjustments to these economic shifts.

Why It Matters: Bitcoin's recent 20% price drop since February has raised questions about the underlying drivers of market sentiment.

Knorr views this as a "healthy correction" rather than a structural shift, attributing the decline to broader market uncertainty and growth fears rather than inflation concerns.

He notes that Bitcoin remains significantly up compared to one or two years ago, suggesting long-term resilience.

Lienkha, however, warns of continued pressure, stating, "Bitcoin is likely to remain under pressure in the medium term," given the prevailing macroeconomic uncertainty and a bearish trend that has persisted since February.

Delhaes ties the correction to growth concerns, emphasizing Bitcoin's sensitivity to broader macro signals, while Barthere attributes it to a repricing of growth expectations, underscoring the market's adjustment to a slowing economy.

The trade war's ripple effects extend beyond token prices, impacting Bitcoin mining operations due to China's dominant role in hardware manufacturing.

Dillon Liang, co-founder of Concrete, highlights the potential challenges, noting that "China remains a dominant player in manufacturing mining hardware," and tariffs or further supply chain disruptions could lead to increased hardware costs, slower deployment cycles, and greater consolidation among mining firms, favoring well-capitalized players.

This underscores the vulnerability of the crypto ecosystem to geopolitical tensions, even as Bitcoin earns its status as "digital gold" and a hedge against macro uncertainty, as Liang points out.

What’s Next: Amid this fragmentation, neutral settlement assets are gaining traction as viable alternatives for cross-border transactions.

Ermin Sharich, co-founder of Aegis, observes that "as global trade becomes more fragmented… neutral settlement assets like Bitcoin and stablecoins are gaining appeal," particularly in regions seeking to hedge against geopolitical risk.

He cites examples like Russia and China exploring digital asset settlement outside the SWIFT system, and emerging markets using Tether for trade, illustrating the growing role of cryptocurrencies in bypassing traditional financial chokepoints.

Sharich notes that stablecoins, with their price stability and easier integration into traditional systems, hold greater appeal than Bitcoin for such purposes, though both assets benefit from the trend toward trade fragmentation.

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