Bitcoin's Strategic Bull Case: Fed Policy Shifts and the End of QT as Catalysts for 2026 Growth

The Federal Reserve's evolving monetary policy in late 2025 is poised to reshape the macroeconomic landscape for Bitcoin. With a 25-basis-point rate cut expected in October 2025 and the potential termination of quantitative tightening (QT) by year-end, the Fed is signaling a shift toward liquidity expansion and higher inflation tolerance, according to a Bond Buyer report. This pivot, driven by weak labor market data and declining bank reserves, could catalyze a new bull phase for Bitcoin in 2026.

Historical Correlation: Bitcoin and Fed Liquidity Cycles

Bitcoin's price dynamics have historically aligned more closely with liquidity conditions than traditional inflation metrics. During the 2020–2022 stimulus period, Bitcoin surged alongside the Fed's balance sheet expansion and near-zero interest rates, while tightening cycles led to sharp corrections. A Cognac white paper highlights that a 1% reduction in the federal funds rate could drive Bitcoin's price up by 13.25% to 21.20%, with extreme scenarios projecting a 30% surge. The paper's findings contrast with Bitcoin's weak correlation to CPI inflation, which NYDIG research suggests is inconsistent and often negligible.

The 2024 halving further strengthened Bitcoin's scarcity narrative, reducing its inflation rate to 0.8–0.9%-a stark contrast to the Fed's 2.7% inflation target in early 2025, according to an EZBlockchain analysis. This divergence positions Bitcoin as a hard-capped asset in an environment where central banks increasingly tolerate higher inflation to stimulate growth.

2026 Catalysts: QT Termination and Rate Cuts

The Fed's decision to end QT by late 2025 or early 2026 would reverse years of liquidity contraction, injecting trillions into financial markets, according to a Coinotag article. Analysts like Dr. Andre Dragosh from Bitwise argue that this shift could extend the crypto bull market by amplifying global liquidity growth, the article notes. JPMorgan and Bank of America have already advanced their QT end forecasts due to rising dollar funding costs, with both institutions projecting a halt to balance sheet reductions by year-end.

Simultaneously, the Fed's rate cuts-projected to reach three reductions by mid-2026-will lower borrowing costs and incentivize risk-on investments, the report adds. Historical precedents, such as QE1 and QE2, show that such easing cycles historically boost inflation expectations, which in turn drive demand for Bitcoin as a hedge.

Mitigating Bearish Pressures: The Mt. Gox Factor

A critical bearish risk for Bitcoin in 2026 has been the delayed repayment of $4 billion in Bitcoin from the bankrupt Mt. Gox exchange. However, the extended deadline-pushed to October 31, 2026-reduces the likelihood of a sudden sell-off, allowing the market to absorb the supply gradually, according to a CoinPedia report. This delay, combined with Fed-driven liquidity expansion, creates a more favorable environment for sustained price appreciation.

Investment Thesis

The convergence of Fed policy shifts and Bitcoin's structural advantages-fixed supply, halving-driven scarcity, and liquidity sensitivity-forms a compelling bull case for 2026. With QT termination and rate cuts projected to enhance global liquidity, Bitcoin is well-positioned to outperform traditional assets in a risk-on environment. Institutional adoption and macroeconomic tailwinds further reinforce this thesis, suggesting a potential 20–30% price surge aligned with historical easing cycles.