$7 Trillion in U.S. Money Market Funds Could Fuel Bitcoin and Altcoin Rally

U.S. money market funds now hold over $7 trillion, a record level that analysts believe could soon rotate into riskier assets like bitcoin (BTC) and altcoins. Money market funds, which invest in short-term debt such as Treasury bills and commercial paper, have surged in popularity during the Federal Reserve’s rate hike cycle, offering investors safe yields above 4%.

According to the Investment Company Institute (ICI), total assets in these funds rose by $52.37 billion to $7.26 trillion for the week ending Sept. 3. Retail funds climbed to $2.96 trillion, while institutional funds reached $4.29 trillion. However, with the Fed expected to cut rates by at least 25 basis points at its upcoming meeting—possibly even 50 bps—the yield advantage could fade, prompting investors to redeploy capital.

David Duong, Institutional Head of Research at Coinbase, noted that as rate cuts materialize, trillions in retail cash could shift into equities and cryptocurrencies. Similarly, Jack Ablin of Cresset highlighted that lower yields on money market funds may encourage a move into riskier assets like stocks and crypto.

Still, the flow of funds depends on the broader economy. If cuts occur during a slowdown, many investors may keep cash parked in money markets for safety. Pseudonymous macro analyst EndGame Macro warned that large buildups in money funds often signal looming economic stress, as seen after the dot-com crash, the 2008 crisis, and during 2020.

The pace of any shift hinges on the Fed’s move: a cautious 25 bps cut could mean a gradual outflow, while a larger 50 bps cut might accelerate capital rotation first into Treasuries, then into equities and cryptocurrencies. With $7.4 trillion on the sidelines, the scale of the next move could shape the next “alt season.”