Analyst Predicts US Federal Rate Reductions Will Be Key for Crypto in 2026

According to a crypto analyst, the pace of Federal Reserve rate cuts in 2026 will significantly influence whether retail investors will make a comeback in the crypto market next year.

However, there are uncertainties about the Fed’s willingness to continue cutting rates after having already implemented three reductions in 2025.

Owen Lau, managing director at Clear Street, remarked to CNBC on Tuesday that the Fed’s rate decisions are “one of the primary catalysts for the crypto market in 2026.”

“Retail investors will be more enthusiastic about entering crypto, and institutions will share that excitement,” Lau stated.

Typically, interest rate cuts create a bullish environment for crypto assets, as conventional investments—like bonds and term deposits—become less appealing. This shift encourages investors to seek riskier assets like Bitcoin (BTC) and other cryptocurrencies for better returns.

Fed is “ready to adjust monetary policy”

The Fed’s minutes from December, released on Tuesday, suggest that the central bank is willing to modify rates next year in alignment with broader economic objectives.

“The Committee stands ready to modify the stance of monetary policy as needed if risks arise that could hinder the attainment of the Committee’s goals,” the minutes indicated.

Despite this, some data shows that the market is doubtful about the Fed’s continuation of rate cuts in the early months of the year, according to the crypto prediction platform Polymarket.

Data from Polymarket indicates a mere 15% probability of a rate cut in January, with a higher likelihood of 52% for a cut in March.

The Fed executed three rate cuts in 2025, which the market largely anticipated. The first cut, a reduction of 25 basis points, took place in September. Approximately a month later, on October 5, Bitcoin soared to a new high of $125,100.

Nonetheless, Bitcoin’s rally was abruptly halted by a major liquidation event on October 10, resulting in $19 billion lost in leveraged positions.

Crypto market sentiment is declining

This was followed by another 25 basis point cut in October, and a further cut of the same amount in December, even though the minutes revealed a split among Fed members on the necessity of the December cut.