Federal Reserve Q1 2026 Outlook: Potential Impact on Bitcoin and the Cryptocurrency Market

Title: Fed Q1 2026 outlook: Potential impact on Bitcoin and crypto markets

Author: Yashu Gola

Source:

Translation: Daisy, Mars Finance

If the Federal Reserve pauses rate cuts in Q1 2026 and inflation pressures persist, BTC could fall to $70,000, and ETH could drop to $2,400.

Key Points:

The Fed’s pause could put pressure on cryptocurrencies, but “hidden QE” may buffer downside risks.

Liquidity is more important than rate cuts, determining the trajectory of BTC and ETH in Q1 2026.

The US Federal Reserve cut rates three times in 2025, mainly in the fourth quarter, as unemployment rose slightly and inflation showed clearer signs of cooling.

However, the crypto market’s reaction was contrary to intuition. Bitcoin, Ethereum, and major altcoins did not rebound under dovish policies; instead, they sold off, with total market cap evaporating over $1.45 trillion from October’s all-time high.

TOTAL crypto market cap monthly chart. Source: TradingView

Let’s examine the direction of central bank policies before March 2026 and their potential impact on the broader crypto market.

If the Fed pauses rate cuts, Bitcoin and Ethereum could decline more sharply

Despite three consecutive rate cuts of 0.25% each, most Fed officials, including New York Fed President John Williams, emphasized inflation risks and reliance on data, without signaling further easing.

“I personally don’t think there’s an urgent need to take further action on monetary policy right now because I believe the rate cuts we’ve already made put us in a very good position,” Williams said on December 19, adding:

“I want to see inflation fall back to 2% without causing excessive harm to the labor market. That’s a balancing act.”

US core inflation. Source: Bureau of Labor Statistics/Bloomberg

Therefore, the 2.63% CPI in November should increase the probability of rate cuts in Q1 2026.

However, a record US government shutdown disrupted data collection by the Bureau of Labor Statistics. Some economists, including Robin Brooks, worry this could potentially distort the November annual inflation reading.

Source: X

This uncertainty helps explain why cryptocurrencies have not rebounded in recent months solely due to rate cuts.

Jeff Mei, COO of crypto exchange BTSE, stated that if the Fed maintains rates throughout Q1 2026, BTC could fall to $70,000, and ETH could dip to $2,400.

The Fed’s “hidden QE” may stabilize crypto prices

On December 1, the Fed officially ended quantitative tightening, instead rolling over maturing Treasuries and MBS in full to prevent further reserve drain.

Subsequently, the Fed launched Reserve Management Purchases (RMPs), about $40 billion in short-term Treasury purchases, to stabilize bank reserves and ease money market pressures. Some analysts describe this move as a form of quantitative easing, or “hidden QE.”

In contrast, during the 2020–2021 QE period, the Fed’s balance sheet grew by about $800 billion per month, while the total crypto market cap expanded by over $2.9 trillion.

TOTAL crypto market cap vs. the Fed balance sheet monthly performance chart. Source: TradingView

If RMPs continue at a slow pace into Q1 2026, they could quietly inject liquidity, supporting risk appetite and stabilizing crypto prices without aggressive rate cuts.

“This means Bitcoin could rise to $92,000–$98,000, supported by continued ETF inflows exceeding $50 billion and increased institutional holdings,” Mei wrote, adding:

“Ethereum could push toward $3,600, benefiting from recent layer-2 scaling improvements and staking yields attracting DeFi users.”