Q1 2026 Outlook for the Fed: Potential Impact on Bitcoin and the Cryptocurrency Market

The US Federal Reserve (Fed) has implemented three interest rate cuts in 2025, mainly focusing on the final quarter, as the unemployment rate tends to rise and inflation begins to cool significantly.

However, the cryptocurrency market reacted unexpectedly. Instead of experiencing strong growth under loose monetary policy, Bitcoin (BTC), Ether (ETH), and major altcoins all plummeted, causing the total market capitalization to “vanish” by more than $1.45 trillion from the October peak.

Monthly Cryptocurrency Market Capitalization Chart | Source: TradingView## Fed Policy Outlook through March 2026 and Its Impact on the Cryptocurrency Market

The Fed’s policies in the upcoming period will play a crucial role, especially regarding the development of the cryptocurrency market. Despite having made three consecutive rate cuts, each by 0.25%, most Fed officials—including New York Fed President John Williams—still emphasize inflation risks and reliance on economic data, and have not provided clear signals about the possibility of further easing.

“I don’t feel the need to take additional monetary policy actions at this time, as the recent cuts have put us in a good position,” Mr. Williams shared, also emphasizing: “My goal is to bring inflation back to 2% without causing excessive harm to the labor market. That’s truly a balancing act.”

US Core Inflation | Source: Bureau of Labor Statistics/Bloomberg With the Consumer Price Index (CPI) for November reaching 2.63%, the likelihood of the Fed cutting interest rates further in Q1/2026 is being reinforced. However, the recent record US government shutdown disrupted the Bureau of Labor Statistics’ data collection process, causing some economists—such as Robin Brooks—to worry about the accuracy of the annual inflation figures for November.

Source: X This uncertainty partly explains why the cryptocurrency market has not seen an upward trend in recent months, despite rate cuts.

According to Mr. Jeff Mei, COO of BTSE exchange, if the Fed maintains current interest rates throughout Q1/2026, BTC could drop to $70,000, and ETH could fall to $2,400.

The Fed’s “Implicit Quantitative Easing” Program and Its Potential to Stabilize Cryptocurrency Prices

On December 1, the Fed officially ended its quantitative tightening program, shifting to extend all maturing Treasury bonds and mortgage-backed securities to prevent further reserve withdrawals. Simultaneously, the Fed launched the Reserve Management Purchase (RMP) program, buying approximately $40 billion in short-term Treasury bonds to stabilize bank reserves and reduce pressure on the money market—an action some experts interpret as a form of “implicit quantitative easing.”

In comparison, during the 2020-2021 quantitative easing period, the Fed’s balance sheet increased by about $800 billion per month, leading to a cryptocurrency market capitalization increase of over $2.90 trillion.

Monthly Performance Chart of Cryptocurrency Market Capitalization and the US Federal Reserve’s Balance Sheet (Fed) | Source: TradingView If the RMP program continues into Q1/2026, albeit at a slower pace, this quietly sustained liquidity could support risk appetite and stabilize cryptocurrency prices even if the Fed does not implement further aggressive rate cuts.

Mei commented: “Bitcoin could easily rise to the $92,000–$98,000 range, thanks to ETF capital flows consistently exceeding $50 billion and institutional accumulation.” He also added: “Ethereum could target the $3,600 level, benefiting from layer 2 expansion improvements and attractive staking yields that lure DeFi users.”