The aggressiveness of Federal Reserve rate cuts in 2026 will determine whether retail investors return to the crypto market next year, according to a crypto analyst.
But there are doubts about how likely the Fed is to continue cutting, after already making three reductions in 2025.
Clear Street managing director Owen Lau told CNBC on Tuesday that Fed rate decisions are “one of the key catalysts for the crypto space in 2026.”
“Retail will be more excited to get into crypto, institutions will be more excited to get into crypto,” Lau said.
Interest rate cuts are typically bullish for crypto assets, as traditional investments like bonds and term deposits become less attractive, pushing investors toward riskier assets such as Bitcoin (BTC) and other cryptocurrencies as they look for higher returns.
Fed is “prepared to adjust the stance of monetary policy”
The Fed’s December minutes, released on Tuesday, indicate that the central bank is open to adjusting rates next year to align with broader economic goals.
“The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals,” the minutes said.
However, some data shows the market is skeptical whether the Fed will continue cutting rates in the first months of the year, according to crypto prediction platform Polymarket.
Polymarket’s data shows just a 15% probability of a rate cut in January, while confidence is higher for a rate cut in March, with a 52% chance.
The Fed has implemented three rate cuts in 2025, and the market had anticipated most of them. The first cut, a 25 basis point reduction, came in September. About a month later, on Oct. 5, Bitcoin surged to a new high of $125,100.
However, Bitcoin’s uptrend was short-lived by a significant liquidation event on Oct. 10 that led to $19 billion wiped out in leveraged positions.
Crypto market sentiment continues to decline
This was followed by another 25 basis point rate cut in October, and a further 25 basis point cut in December, though the minutes showed that Fed members were divided on whether the December cut was necessary.
Bitcoin is down 29.3% from its October all-time high, trading at $88,439 at the time of publication, according to CoinMarketCap.
Related: Bitcoin’s $90K rejection: Is BTC’s digital gold narrative losing to bonds?
Bitcoin’s fall has led to a decline in sentiment for the broader crypto market.
The Crypto Fear & Greed Index, which measures overall crypto market sentiment, has been in the “Extreme Fear” territory since Dec. 13.
On Wednesday, the index posted an “Extreme Fear” score of 23.
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