The Federal Reserve is anticipated to cut interest rates by at least 25 basis points in its upcoming meeting, with some market participants, including BitMEX co-founder Arthur Hayes, predicting a 50 basis point reduction. This expectation follows weak jobs data showing only 22,000 new positions created, far below the 75,000 forecasted. The CME FedWatch Tool indicates an 88% probability of a 25 bps cut and an 11.6% chance of a 50 bps cut.
U.S. money market funds currently hold a record $7.26 trillion, with retail funds accounting for $2.96 trillion and institutional funds for $4.29 trillion. These funds, which attracted investors during the Fed's rate hike cycle with yields around 4.5%, could see massive outflows if rates are cut. David Duong, Institutional Head of Research at Coinbase, and Cresset’s Jack Ablin both believe lower yields will prompt investors to seek higher returns in riskier assets like equities and crypto.
Arthur Hayes specifically highlighted decentralized finance (DeFi) protocols as potential beneficiaries, noting that Ethena’s staked USDe offers a 7% yield, compared to diminishing money market returns. Hayes predicts Ethena’s synthetic dollar supply could surge to over $20 billion from its current $12.98 billion. He recently purchased 1.34 million ENA tokens for 1.02 million USDC, bringing his total holdings to 4.45 million ENA worth $3.48 million, and forecasts ENA’s price will exceed $1.50 (up from $0.792).
However, the capital rotation is not guaranteed. If rate cuts occur amid economic uncertainty or recession fears, investors may prefer the safety and liquidity of money markets despite lower yields. The size of the cut matters: a 25 bps reduction might lead to a gradual shift, while a 50 bps cut could accelerate moves into Treasuries first, then crypto. Hayes also reduced some crypto holdings, signaling caution on short-term altcoin resilience, but remains long-term bullish, predicting Bitcoin could test $100,000 and Ethereum $3,000 if macroeconomic liquidity improves.