Federal Reserve’s Q1 2026 Forecast and Its Possible Effects on Cryptocurrency Markets

Main Insights:

• While pauses from the Fed may exert pressure on crypto, “stealth QE” could mitigate downside risks.

• Liquidity is pivotal compared to rate cuts, influencing BTC and ETH trends in Q1 2026.

The US Federal Reserve implemented three interest rate cuts in 2025, mainly in the last quarter, as unemployment rose and inflation began to cool.

However, the crypto markets responded unexpectedly. Instead of rising with the dovish stance, Bitcoin (BTC), Ether (ETH), and key altcoins experienced declines, with total market capitalization dropping over $1.45 trillion from its peak in October.

Let’s explore how the central bank’s policies may evolve by March 2026 and their potential influence on the wider crypto market.

Bitcoin and Ether Risks Heightened by Fed’s Rate Pause

Even after three consecutive rate cuts of 0.25%, many Fed officials, including New York President John Williams, emphasized the inflation risks and their data-driven approach, providing no definitive indication of further easing.

“I don’t feel an urgency to act further on monetary policy at this moment, as the cuts we’ve executed have placed us effectively,” Williams stated on Friday, adding:

“My aim is to reduce inflation to 2% without causing excessive harm to the labor market. There’s a delicate balance.”

Consequently, the 2.63% CPI recorded in November may increase the likelihood of rate cuts in Q1 2026.

Nonetheless, the prolonged US government shutdown hindered the Bureau of Labor Statistics in collecting data. Some economists, including Robin Brooks, expressed concerns that it might have distorted the annual inflation figures for November.

This uncertainty clarifies why crypto markets did not surge following the recent cuts.

Jeff Mei, the COO at crypto exchange BTSE, predicted that BTC might fall to $70,000, while ETH could decrease to around $2,400 if the Fed maintains steady rates throughout Q1 2026.

Related: A potential drop to $70K for Bitcoin would reset the cycle, not indicate a new bear market: Analyst

Stealth QE from Fed Might Stabilize Crypto Markets

On December 1, the Federal Reserve officially concluded quantitative tightening, transitioning to full rollovers of maturing Treasury and mortgage-backed assets to prevent further reserve depletion.

They also initiated Reserve Management Purchases (RMPs), involving roughly $40 billion in short-term Treasury bill purchases to stabilize bank reserves and alleviate money market pressures, a maneuver some analysts refer to as “stealth QE.”

For context, during the QE phase from 2020 to 2021, the Fed’s balance sheet swelled by about $800 billion monthly, a time when the crypto market cap soared by more than $2.90 trillion.

If RMPs persist into Q1 2026 at a moderated pace, they might subtly inject liquidity, bolstering risk tolerance and stabilizing crypto valuations even in the absence of aggressive rate cuts.

“This suggests Bitcoin could rise to between $92,000 and $98,000, supported by continued ETF inflows exceeding $50 billion and institutional buying,” noted Mei, adding:

“Ethereum may aim for $3,600, benefiting from recent advancements in layer-2 scalability and restaking yields that draw DeFi participants.”

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