Fed Rate Cuts Under Fire: 5 Things to Know in Bitcoin This Week

Bitcoin and the U.S. Federal Reserve remain in focus as 2026 begins with expectations of rate cuts shaping market sentiment. With the Fed expected to cut interest rates in the coming months, investors are watching for signs of a dovish monetary policy shift. The anticipated easing could provide a tailwind for risk assets, particularly the crypto market.

President Donald Trump's anticipated nomination of a new Fed Chair has increased speculation about additional rate cuts in 2026. Morgan Stanley and Citigroup have both revised their forecasts to reflect a more aggressive cut schedule, with some scenarios projecting total reductions of up to 75 basis points by year-end. This dovish outlook is seen as favorable for Bitcoin, as lower rates often drive capital into alternative assets.

The Fed's quantitative easing (QE) program, initiated in December 2025, has already started to boost liquidity. Combined with Trump's $200 billion injection into the housing sector, the cumulative impact is seen as highly supportive for cryptocurrencies. These measures are expected to encourage a risk-on market environment, which historically benefits Bitcoin and other digital assets.

Why Did This Happen?

The recent revision of Fed rate cut forecasts is attributed to evolving economic conditions and political dynamics. The U.S. labor market has shown signs of softening, with initial jobless claims remaining near the lower end of the range despite expectations of higher levels. This data, combined with weak job growth, has reinforced the case for accommodative monetary policy.

Stephen Miran, a top Fed official, has openly supported rate cuts, emphasizing the need for a looser monetary stance to support economic growth. This aligns with broader market expectations, with some analysts forecasting as much as 150 basis points of cuts in 2026.

How Did Markets React?

Bitcoin has fluctuated around the $90,000 level as investors digest the evolving macroeconomic landscape. The asset has shown mixed performance, with spot Bitcoin ETFs experiencing outflows in recent days. However, the broader market remains cautiously optimistic, with many analysts highlighting the potential for a Bitcoin rally into 2026.

The U.S. dollar has weakened in response to the DOJ's criminal investigation into Fed Chair Jerome Powell, with concerns about the Fed's independence pushing investors toward safe-haven assets like gold and Bitcoin. The dollar's weakness has also supported Bitcoin's price action.

What Are Analysts Watching Next?

Institutional adoption of Bitcoin is a key factor in the bullish outlook for the cryptocurrency. Over $100 billion is already invested in U.S. Bitcoin ETFs, with BlackRock's iShares Bitcoin Trust leading the way. Analysts suggest that the next phase of adoption will involve deeper integration into institutional portfolios.

The correlation between Bitcoin and the Japanese yen has also attracted attention, with a reported 0.86 link over the past 90 days. This suggests that Bitcoin is increasingly being treated as a leveraged expression of yen monetary policy. As Japan continues to adjust its monetary stance, this relationship may influence Bitcoin's price trajectory.

Bitcoin's path in 2026 will also depend on its ability to hold key price levels. Analysts are watching the $90,000 support zone closely, with a break below this level potentially triggering a deeper correction. On the other hand, a sustained move above $94,253 could signal renewed bullish momentum.

Macro risks, including potential supply shocks from Venezuela and geopolitical tensions, remain on the radar for investors. The U.S. government's potential seizure of Bitcoin held by the former Maduro regime could have a material impact on the market, either through forced selling or long-term structural holding.

The crypto market is also navigating the risk of a potential bear market in 2026, with some analysts identifying $65,000 as a critical support level. If Bitcoin fails to break this threshold, it may face further downward pressure.

Institutional investors are managing their exposure to Bitcoin, with ETF flows alternating between inflows and outflows based on macroeconomic news. This suggests a tactical rather than strategic approach to crypto allocations.

The overall market environment is mixed, with U.S. equities showing resilience while Bitcoin remains volatile. The S&P 500 has continued to print new highs, while Bitcoin faces internal resistance. This divergence highlights the different risk profiles of the two asset classes.

Investors are also watching the Federal Reserve's communication closely. Any indication of a shift in policy stance or a delay in rate cuts could affect the market's risk appetite. The upcoming CPI data will be a key event, offering more clarity on inflation trends and the Fed's next move.