Liquidity matters more than cuts, shaping the direction of BTC and ETH in Q1 2026.
The US Federal Reserve cut interest rates three times in 2025, largely in the final quarter, as unemployment ticked higher and inflation showed clearer signs of cooling.
Yet crypto markets reacted counterintuitively. Rather than rallying on dovish policy, Bitcoin (BTC), Ether (ETH), and major altcoins sold off, with total market capitalization shedding more than $1.45 trillion from its record high in October.
Let’s examine how the central bank’s policies may fare into March 2026 and their potential impact on the broader crypto market.
Despite delivering three consecutive 0.25% rate cuts, most Fed officials, including New York President John Williams, stressed the risk of inflation and data dependence, offering no clear signal of further easing.
“I don’t personally have a sense of urgency to need to act further on monetary policy right now, because I think the cuts we’ve made have positioned us really well,” Williams said on Dec. 19, adding:
“I want to see inflation come down to 2% without doing undue harm to the labor market. It’s a balancing act.”
As a result, November’s 2.63% CPI should raise rate-cut odds for Q1 2026.
Still, the record US government shutdown disrupted the Bureau of Labor Statistics’ data collection. Some economists, including Robin Brooks, feared that it may have potentially distorted November’s annual inflation readings.
That uncertainty helps explain why crypto failed to rally in the past months on the cuts themselves.
Jeff Mei, the chief operating officer at crypto exchange BTSE, said BTC could drop to $70,000, and ETH could dip to as low as $2,400 if the Fed keeps rates steady throughout Q1 2026.
Related: Bitcoin $70K flush would reset cycle, not confirm new bear market: Analyst
On Dec. 1, the Federal Reserve formally ended quantitative tightening, shifting to full rollovers of maturing Treasury and mortgage-backed securities to halt further reserve drain.
It then launched Reserve Management Purchases (RMPs), approximately $40 billion in short-term Treasury bill purchases, to stabilize bank reserves and ease money market stress, a move some analysts describe as a form of quantitative easing, or “stealth QE.”
In comparison, the Fed’s balance sheet increased by approximately $800 billion every month during the QE in 2020-2021, a period when the crypto market cap ballooned by over $2.90 trillion.
If RMPs continue into Q1 2026 at a slower pace, they could quietly inject liquidity, supporting risk appetite and stabilizing crypto prices even without aggressive rate cuts.
“This means Bitcoin could climb to $92,000-$98,000, supported by ongoing ETF inflows surpassing $50 billion and institutional accumulation,” wrote Mei, adding:
“Ethereum could push toward $3,600, benefiting from recent layer-2 scaling improvements and restaking yields that attract DeFi users.
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