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- A Fed pause in early 2026 could pressure Bitcoin and Ethereum prices.
- Liquidity conditions may matter more than interest rates alone.
- Quiet balance-sheet support could help stabilize crypto markets.
Bitcoin and Ether are heading into 2026 with an unusual problem: interest rates are falling, but prices are not responding the way many investors expected.
The US Federal Reserve cut rates three times in 2025, mostly late in the year, as inflation cooled and unemployment edged higher. Traditionally, such moves support risk assets. Instead, crypto markets slid sharply, wiping out more than $1.4 trillion in total value from October highs. That disconnect is now shaping expectations for the first quarter of 2026.
Why a Fed Pause Could Hit Crypto Hard
Despite recent easing, Federal Reserve officials have made it clear they are not rushing into further cuts. Policymakers continue to emphasize inflation risks and a data-driven approach, leaving markets uncertain about near-term support.
If rate cuts stall in early 2026, analysts warn that crypto could face renewed downside pressure. Some forecasts suggest Bitcoin could retrace toward the $70,000 level, while Ether could slide closer to $2,400 if borrowing conditions remain tight and inflation fails to cool convincingly.
This uncertainty has already weighed on sentiment. Inconsistent inflation data and disruptions to economic reporting have made it harder for investors to price future policy moves, dulling the impact of last year’s cuts.
Liquidity, Not Rates, Is the Real Driver
While rate decisions dominate headlines, liquidity conditions may matter more for crypto’s direction. In late 2025, the Fed quietly ended its balance-sheet runoff and began reinvesting maturing securities, preventing further drain on bank reserves.
At the same time, it introduced modest purchases of short-term Treasury bills to stabilize money markets. Though far smaller than the massive stimulus seen during the pandemic, these actions have led some market watchers to describe the shift as a form of “stealth” liquidity support.
Can Quiet Liquidity Support Cushion the Downside?
If these reserve-support operations continue into early 2026, they could soften the impact of a rate pause. Even limited liquidity injections can improve risk appetite, particularly when combined with strong institutional demand.
Bitcoin may benefit from continued spot ETF inflows and long-term accumulation, potentially allowing prices to stabilize or recover despite tighter policy. Ether, meanwhile, could find support from layer-2 growth and yield-focused upgrades that attract decentralized finance activity.
The Bigger Picture for Q1 2026
Crypto markets are no longer reacting to rate cuts alone. Instead, investors are watching liquidity flows, institutional behavior, and policy signals in combination. A Fed pause may bring volatility, but behind-the-scenes support could prevent a deeper breakdown.
Disclaimer: The information in this article is for general purposes only and does not constitute financial advice. The author’s views are personal and may not reflect the views of Chain Affairs. Before making any investment decisions, you should always conduct your own research. Chain Affairs is not responsible for any financial losses.
