The U.S. Federal Reserve is facing heavy pressure to cut interest rates. President Donald Trump recently warned that Fed Chairman Jerome Powell's job could be at risk if he doesn't cut rates fast.

But let's set aside all the political undertones and deal-making calculations, and focus on the overarching questions: What happens to cryptocurrency prices if there is a rate cut? And which cryptocurrencies would become most attractive in a lower-rate environment?

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Learn More »

The relationship between interest rates and crypto prices

The general rule of thumb is that rising interest rates result in lower crypto prices, while declining interest rates result in higher crypto prices. That might sound simplistic, but when rates are lower, the cost of borrowing is lower. Moreover, risky assets suddenly appear more attractive on a relative basis. That generally leads to an infusion of new money pouring into crypto.

This is the scenario that Charles Hoskinson, the co-founder of both Ethereum (CRYPTO: ETH) and Cardano (CRYPTO: ADA), now sees happening with the crypto market. In a recent podcast interview with CNBC, he laid out a scenario where lower interest rates might lead to a new speculative frenzy in crypto, helping to push Bitcoin (CRYPTO: BTC) to $250,000 by the end of the year. That's incredibly bullish but gives you an idea of the immediate impact a rate cut could have on crypto.

Historical evidence

Given that Bitcoin officially started trading in January 2009, three distinct time periods over the past 15 years could provide important clues about the link between crypto prices and interest rates.

There was the low interest-rate environment created in response to the 2008 global financial crisis; the Federal Reserve's policy of interest rate increases in 2017–2018; and the low interest-rate environment created in response to the pandemic.

If you look at these three periods, they all tell the same story: Lower interest rates help crypto, while higher interest rates hurt it.

The Federal Reserve Building in Washington. Image source: Getty Images.

For example, during the COVID-19 pandemic, central banks around the world slashed interest rates nearly to zero and introduced all sorts of new stimulus measures, in the hopes of reviving economic growth.

And it worked! The period from 2020-2021 resulted in a huge bull market rally for Bitcoin, as it skyrocketed in value to a (then) all-time high of $69,000 in November 2021.

It's easy to see why President Trump is now pressing so hard for interest rate cuts. If new tariffs are going to curtail future economic growth, then there needs to be some sort of stimulus to keep the economy moving. And that stimulus is cheap money.

Just keep in mind: Crypto is still a relatively new asset class, and we still really don't know how it will perform after rate cuts. History may be a guide, but it's not a precise indicator of what happens next.

Which cryptos should you buy?

Based on the above, Bitcoin appears to be the obvious beneficiary of lower interest rates. After all, didn't it skyrocket to $69,000 as soon as rates were cut in 2020?

However, don't forget about altcoins. In an environment of lower interest rates, riskier assets such as beaten-down altcoins (some of them down as much as 50% for the year) could start to look a lot more attractive on a relative basis. And that might mean we finally get the arrival of "Altcoin Season" -- the time of the year when risky altcoins explode in value and outperform Bitcoin.

All of this should highlight the importance of portfolio diversification. It still makes sense to make Bitcoin the focus of any new crypto buying in the wake of rate cuts, but now might be the time to explore new coins to diversify your portfolio.

My personal pick right now would be coins with significant exposure to the decentralized finance (DeFi) sector. That's what World Liberty Financial, the crypto company affiliated with the Trump family, appears to be loading up on now. These coins also performed very well during the 2020-2021 crypto bull market cycle, highlighted by the speculative, frothy "DeFi Summer" of 2020.

As always, remember to do your due diligence. Crypto has always been risky and volatile, and the current economy is especially dicey, with unknown consequences ahead.

Should you invest $1,000 in Bitcoin right now?

Before you buy stock in Bitcoin, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Bitcoin wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $566,035!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $629,519!*

Now, it’s worth noting Stock Advisor’s total average return is 829% — a market-crushing outperformance compared to 155% for the S&P 500. Don’t miss out on the latest top 10 list, available when you join Stock Advisor.

See the 10 stocks »

*Stock Advisor returns as of April 21, 2025

Dominic Basulto has positions in Bitcoin, Cardano, and Ethereum. The Motley Fool has positions in and recommends Bitcoin, Cardano, and Ethereum. The Motley Fool has a disclosure policy.

If you're new to crypto, here's one idea you might not have heard before: Bitcoin (CRYPTO: BTC) could be ready to challenge the U.S. dollar as the world's reserve currency. That type of transformative change, of course, would be history-making, and it would require a fundamental restructuring of the global financial system -- sort of like we're seeing right now, with tariffs and the potential for a global trade war.

In his annual letter to investors this year, BlackRock (NYSE: BLK) CEO and Chairman, Larry Fink, suggested that Bitcoin had the potential to replace the U.S. dollar as the world's reserve currency. Is that scenario really possible? And if it is, what does it mean for Bitcoin's future?

Start Your Mornings Smarter! Wake up with Breakfast news in your inbox every market day. Sign Up For Free »

The case for Bitcoin as a reserve currency

There's obviously a lot to unpack here. The first is the entire notion of what a reserve currency should be, and what role it plays in the global economy. The easiest way to think about a reserve currency is that it is the one currency that you need to do business in the world. So it needs to be truly global. It needs to function as a medium of exchange for trade and investment. And it needs to be accepted and used by citizens in every sovereign nation.

According to crypto enthusiasts, Bitcoin meets -- at least on paper -- the required characteristics to be the world's reserve currency. In fact, for more than a decade, Bitcoin bulls have made the argument that Bitcoin would eventually replace the U.S. dollar. They view Bitcoin as "sound money," while fiat currencies are fundamentally flawed, due to the ability of governments to print vast sums of money.

At some point in time, the thinking goes, people will prefer to hold Bitcoin rather than dollars. Sovereign governments and central banks will choose to stockpile Bitcoin rather than dollars. Assets will begin to be priced in Bitcoin, rather than in dollars, to facilitate global trade. Eventually, the dollar will become just like the pound, which served as the world's reserve currency for more than a century.

Larry Fink's letter to investors

That's all you need to understand the context of Fink's annual letter to investors. As Fink points out in his 2025 letter: "The U.S. has benefited from the dollar serving as the world's reserve currency for decades. But that's not guaranteed to last forever." He points specifically to the nation's growing debt load, which has grown at 3 times the pace of gross domestic product (GDP) since 1989. In 2025, says Fink, interest payments on that debt will reach nearly $1 trillion, which is more than the U.S. spends on defense.

At some point, it's just not sustainable. The expanding U.S. debt load is a potential house of cards, the unfortunate outcome of America living beyond its means for decades. This is a point that Fink drives home: "If the U.S. doesn't get its debt under control, if deficits keep ballooning, America risks losing that position to digital assets like Bitcoin."

Image source: Getty Images.

In many ways, what is happening now in America is similar to what happened to Great Britain in the last century. Paying for two world wars at the start of the 20th century nearly bankrupted Great Britain, eventually forcing it to cede its place in the global economy to the United States.

How likely is this scenario?

It's hard to imagine a world where Bitcoin takes over immediately. As in the case of the dollar replacing the pound, it will take massive international cooperation. In 1944, it took the Bretton Woods Agreement to make it happen, when dozens of nations from around the world met in New Hampshire to hammer out a deal. In addition to holding gold, the nations agreed to hold dollars, which were backed by the world's largest gold supply at the time. And they agreed on the role of central banks in setting exchange rates pegged to the dollar.

A similar type of massive global cooperation involving Bitcoin might strike some people as being preposterous. But just look at what is happening now with tariffs and a potential trade war with China. Any time the White House says something like "50 nations called us to discuss a deal," I think about a new Bretton Woods.

Bitcoin and the global financial system

The current debate over tariffs and trade is exposing all the interdependencies between fiscal deficits, trade deficits, and global economic growth. We're learning about the fragility of the equity and debt markets, and how investor perceptions can change on a dime. The past few weeks have been a crash course in macroeconomics for many investors.

Against this backdrop, sovereign governments and central banks are starting to stockpile Bitcoin, with the U.S. leading the way with its Strategic Bitcoin Reserve. Russia and China are already experimenting with Bitcoin as a mechanism for international trade, especially in settling energy trades. Bolivia has said it will pay for imported electricity with cryptocurrency, and El Salvador has experimented with Bitcoin-denominated sovereign debt.

These are potential baby steps to Bitcoin eventually replacing the U.S. dollar one day. But it will likely require something massive and consequential, like the 1944 Bretton Woods Agreement, to make it happen. You can't just say that Bitcoin is a reserve currency and expect it to happen overnight. However, a potential change in the global financial system might be the best reason yet to start buying Bitcoin now.

Should you invest $1,000 in Bitcoin right now?

Before you buy stock in Bitcoin, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Bitcoin wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $495,226!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $679,900!*

Now, it’s worth noting Stock Advisor’s total average return is 796% — a market-crushing outperformance compared to 155% for the S&P 500. Don’t miss out on the latest top 10 list, available when you join Stock Advisor.

See the 10 stocks »

*Stock Advisor returns as of April 10, 2025

Dominic Basulto has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.