Fed Rate Cut Would Cause Markets to Plunge, JP Morgan Warns – Is Bitcoin Safe?

Introduction

Picture a market collapse when the Federal Reserve finally cuts interest rates; the rate cut is supposed to be good for the economy but is perceived as bad for stocks, prompting an immediate sell-off (“sell the news”). That’s the grim warning from JP Morgan’s trading desk in the run-up to the Fed’s Sept 17, 2025 meeting, at which a 25 basis point (bp) cut is broadly expected.

To investors trying to navigate today’s digitally interconnected financial world, this is not merely Wall Street drama; it’s a high-stakes technical signal that could reverberate across stocks, bonds, and cryptocurrencies. And now — at Bitcoin prices of approximately $110,000 USD, with a close correlation to the evergreen XXR:SP500 — sell-side traders are faced with the obvious question: Are markets going down during this Fed rate cut, with Bitcoin coming along for the ride?

In times of economic uncertainty, it’s important to understand these dynamics in order to help protect portfolios and identify opportunities in volatile assets like crypto.

Historical Context

The Federal Reserve’s rate reductions have served as a double-edged sword for financial markets for some time now, and they are not unique in that sense: outcomes have depended on the context of the broader economy.

Going back to the birth of modern monetary policy, the Fed’s first major easing cycle not tied to a recession took place in 1995 when it cut rates in the face of ebbing inflation. The S&P 500 roared back, rising more than 34 percent over the next 12 months as lower borrowing costs powered corporate expansion and investor confidence.

Key milestones underscore this pattern. In 2019, a similarly non-recessionary rate cut cycle, spurred on to combat trade warfare, took the S&P 500 up by over 28% on an annual basis, with Bitcoin moving from $3,700 to $13,800 by year-end in tow of a burgeoning bull market at the time.

The historical data is clear: In the 12 other instances in which the Fed has done just that since 1950 (cut rates outside of a recession), the S&P 500 has gained a modest average of 1.2% in the month immediately following the cut, but a strong average of 14.1% in the subsequent 12 months. Recessions, by contrast, signaled by cuts like those of 2001 or 2008, more often led to deeper drawdowns, with an index pullback averaging 20% right out of the gate.

Bitcoin's correlation with stocks is getting stronger. During the 2020 rate cuts in the pandemic (a recession period), BTC crashed initially with equities before rallying up significantly — 300% by the end of the year. Such precedents illustrate that, timed correctly, Fed rate cuts can act as a trigger for market lifts, though JP Morgan’s current caution mirrors past “sell the news” events, such as 2015’s taper tantrum, which saw investors rush to take profits as initial optimism waned.

Current Data

CME FedWatch is pricing an 87% probability of a Fed cut in September 2025. CFTC data shows a 69.7% probability of a cut and a 10.1% probability of a 50bp cut. The Federal Reserve is expected to cut rates by 25bp, according to the CME FedWatch Tool.

The S&P 500 has breached a new all-time high near 6,223, rising 4.61% over the past week and 23.8% year-to-date, taking its cue from big tech names and easing inflation signs. But volatility looms: The VIX, Wall Street’s fear gauge, is up 15% over the past week on labor market jitters.

This stock market buoyancy is reflected in Bitcoin, which is adjusting price around $110,383 but under stress. After a 5% retreat in August — its first red month since April — BTC is back above $110,500 on fresh corporate buys and rate cut optimism. Whales have accumulated heavily, setting a new record of 19,130 addresses with more than 100 BTC, suggesting strong confidence in the long term. But last month Bitcoin ETFs saw $751 million of outflows, indicating short-term wariness.

The BTC-S&P 500 correlation is 0.70 during recent stress periods, up from 0.38 over five years, implying crypto’s destiny is increasingly tied to equities. Adoption trends also support the case: More than 90 companies now own BTC as a treasury asset, and the weakening USD (down 8% YTD) delivers tailwinds for risk assets like Bitcoin.

Implications

These numbers are mixed news for investors, regulators, and businesses.

For investors, JP Morgan’s note that a market drop isn’t unlikely after the rate cut suggests increased near-term risk in the most extended sectors — i.e., tech, which makes up a heavy part of the S&P 500. Such a “sell the news” event might shave equities by 5–10% and Bitcoin with them, given the 70% correlation, possibly testing BTC’s $100,000 base. Banks such as JP Morgan advise hedging with VIX calls to ride volatility spikes and buying gold as a hedge, which has gained 12% year-to-date.

Regulators face a delicate balancing act: The Fed’s 3.6% dovish pivot may free up some liquidity for continued crypto innovation, while a meatier 50bp cut could indicate worse trouble ahead and encourage tougher scrutiny of speculative assets.

Companies, especially in fintech and crypto, are poised to gain from cheaper borrowing, which will accelerate Bitcoin adoption — imagine corporate treasuries allocating to BTC because bond yields are lower. But a connected sell-off might intensify the liquidity crunch for leveraged traders, as in previous downturns.

Overall, while historical data indicates non-recessionary cuts increase the market long term, the immediate bias is to diversify: blend stocks, crypto, and hedges to guard against Bitcoin’s price being hit by the Fed’s rate cut.

Future Outlook

Going forward, industry experts remain largely bullish about Bitcoin despite short-term headwinds from the Fed’s rate cut. Changelly analysts predict BTC will range between $108,802 and $124,283 by September 2025, with a potential surge back to $118,319 by October as long as support holds.

With Standard Chartered revising its forecasts for several cuts, possibly totaling 50bps, we could see the RBI forecast for potentially 50bps of cuts prompt a risk-on rally in BTC, pushing it to 120K by year-end as per previous 99Bitcoins forecasts.

A panel of experts on average sees BTC at $145,167 by Dec. 2025 based on dollar trends and institutional flows. Even JP Morgan’s own strategist, Fabio Bassi, acknowledges the bar for aggressive easing is high, but if inflation continues to decline, rate cuts might echo 2019’s surge, which took the S&P 500 20% higher and lifted Bitcoin alongside.

Bloomberg data shows that cuts outside of recessions have historically been followed by market gains, with the S&P averaging 20.6% growth after the first cut during expansions. That could mean BTC will overtake $150,000 by the end of 2025, as Forbes analysts predict, driven by ETF demand and global capital flows.

However, risks remain: a close below $100,000 could lead to a dip to $95,000 before upward movement. The outlook leans in favor of upside for Bitcoin, given data such as record whale holdings and bullish RSI divergence — provided the Fed doesn’t hint at an incoming recession.

Investors watching for Bitcoin’s reaction to the Fed rate cut should focus on the September close: a strong hold above key levels will confirm the momentum is intact.

This article is contributed by an external writer: Caleb Obed.
 

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