When interest rates rose sharply in 2022 and 2023, many cryptocurrencies stumbled as investors pivoted toward more conservative investments. But in 2024, the crypto market warmed up again as the Federal Reserve cut its benchmark rates three times.
The Fed hasn't cut its rates yet in 2025, and stubbornly high inflation rates (according to The Motley Fool's latest numbers) might prevent it from replicating its big rate cuts from last year. Nevertheless, most analysts still anticipate at least one or two rate cuts by the end of the year as inflation cools off.
Assuming that happens, three popular tokens -- Bitcoin (BTC -0.58%), Dogecoin (DOGE -2.41%), and XRP (XRP -1.31%) -- could head even higher.
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1. Bitcoin
Bitcoin, the world's most valuable cryptocurrency, still needs to be digitally mined with the energy-intensive proof of work (PoW) validation mechanism. It has a maximum supply of 21 million tokens, and 19.9 million of those tokens have already been mined.
As interest rates declined, three other catalysts drove Bitcoin's price higher. First, the approvals of Bitcoin's first spot price exchange-traded funds (ETFs) last January drew in more retail and institutional investors. Second, its latest halving, which reduces its rewards for mining in half every four years, tightened up its supply last April. Lastly, many governments -- including the U.S. -- are relaxing their regulations for cryptocurrencies and building Bitcoin reserves.
Those catalysts are essentially turning Bitcoin into digital gold, and more investors could embrace it as a hedge against the inflationary headwinds for fiat currencies. Since the Fed's rate cuts usually weaken the U.S. dollar, they could make Bitcoin even more attractive as a safe-haven asset.
2. Dogecoin
Dogecoin is mined with the same PoW mechanism as Bitcoin, but it's an inflationary token, with nearly 150 billion coins in circulation and no maximum supply. However, this meme coin still attracts a lot of attention because it's frequently endorsed by Elon Musk and other celebrity investors.
Musk had Tesla start accepting Dogecoin for some of its products in 2021, while his creation and brief leadership of the controversial Department of Government Efficiency (DOGE) under the Trump administration generated even more buzz for the token.
Therefore, the combination of interest rate cuts and more celebrity endorsements could drive its price a lot higher -- since it has a massive social media presence with over 2.7 million subreddit members on Reddit and 11.2 billion related views on ByteDance's TikTok.
Yet there are even more catalysts on the horizon. Several firms submitted their applications for Dogecoin ETFs earlier this year, and those approvals could drive its price higher. The expansion of Dogechain, an official Layer-2 blockchain built on Polygon, could also draw in more developers of decentralized apps (dApps) and stabilize its price.
3. XRP
XRP, the native cryptocurrency of the XRP Ledger, can't be mined like Bitcoin. Its creators minted its entire supply of 100 billion tokens prior to its market debut, then sold some of those tokens to fund the expansion of Ripple Labs -- a fintech company that offers blockchain-based money transfers as a cheaper, faster, and more secure alternative to traditional SWIFT (Society for Worldwide Interbank Financial Telecommunication) transfers.
The Securities and Exchange Commission (SEC) sued Ripple and claimed it sold those XRP tokens as unregistered securities, and that lawsuit dragged on for four years before finally concluding with a lighter-than-expected fine last year. With that lawsuit out of the way, XRP returned to the major crypto exchanges and attracted some fresh attention.
In addition to lower interest rates, three other tailwinds might drive XRP's price even higher over the next year: the recent launch of its first spot price ETF, its increasing usage as a bridge currency for cross-border transactions, and the growth of its developer ecosystem with the usage of lightweight "hooks" to develop simple programs within its blockchain.
All those catalysts might help XRP outperform Bitcoin and many other established tokens as the crypto market heats up again.
