More than $7 trillion parked in U.S. money market funds could become a major source of capital for risk assets — including Bitcoin and altcoins — if interest rates start to fall. The Investment Company Institute reported a weekly rise of $52.37 billion, bringing total assets to $7.26 trillion for the week ended Sept. 3, with $2.96 trillion in retail funds and $4.29 trillion in institutional funds.
Money market funds invest in short-term, high-quality debt such as Treasury bills and commercial paper. They became popular during the pandemic and through the Fed’s rate-hike cycle because they offered safety plus attractive yields. But that yield cushion could shrink if the Federal Reserve cuts rates — a move many traders expect in the coming meetings.
Institutional research heads and market strategists say reduced yields would likely push some of this cash into higher-risk assets. David Duong, Institutional Head of Research at Coinbase, told CoinDesk that retail flows held in money markets could redeploy into equities and crypto once rate cuts lower the appeal of cash-like returns.
How the rotation would work: as short-term yields fall, investors typically chase returns first in longer-dated Treasuries and then move toward equities, corporate credit and other risk assets. For crypto, that means fresh bid pressure for Bitcoin and selective altcoins — especially those favored by institutions and high-net-worth investors.
But the shift is not guaranteed. Analysts warn the ultimate path depends on the broader economic backdrop. If rate cuts arrive amid an economic slowdown or higher uncertainty, investors may prefer to keep liquidity in money market funds for safety and access. Pseudonymous X commentator EndGame Macro noted similar cash buildups occurred after past crises, signaling caution rather than an immediate risk-on impulse.
What traders and portfolio managers should watch: incoming Fed signals (size and timing of cuts), liquidity in Treasuries and credit markets, and early rotation patterns from cash to short-duration bonds. A modest 25 bps cut may produce gradual reallocation, while a larger 50 bps move could accelerate flows into risk assets — amplifying volatility in crypto markets.
In short, the $7T money-market pool is a potential catalyst for the next crypto rally, but the outcome hinges on rate action and macro sentiment. Investors should weigh the opportunity against the uncertainty of timing, market structure and liquidity.
Source: CoinDesk. Read the original coverage for full details.